Simple Moving Average (SMA)

The Simple Moving Average (SMA) is one of the most fundamental and widely used technical indicators. It calculates the arithmetic average of a security's closing price over a specified number of periods. For example, a 50-day SMA adds up the closing prices of the last 50 trading days and divides by 50. As each new day's price is added, the oldest price drops off, creating a "moving" average that smooths out short-term fluctuations and highlights the underlying trend direction. Common SMA periods include 20 (short-term), 50 (intermediate), and 200 (long-term). The 200-day SMA is particularly significant — institutions and funds use it as a benchmark for long-term trend direction, and the "golden cross" (50-day crossing above 200-day) and "death cross" (50-day crossing below 200-day) are among the most watched signals in technical analysis. While SMA is simple and intuitive, it gives equal weight to all prices in the period, which means it can be slow to react to recent price changes compared to exponential moving averages.