# Simple Moving Average (SMA)

Beginner

## What Is an SMA?

A simple moving average (SMA) is a technical analysis tool that helps traders identify market trends by smoothing out price data. It is calculated by averaging the closing prices of an asset over a specified number of periods. The result is a line on a chart that makes price movements easier to visualize and interpret.

## How Do SMAs Work?

SMAs work by calculating the average price of an asset over a set period, such as 10, 20, or 50 days. The formula for an SMA is straightforward: add up the closing prices for the number of periods you are interested in, and then divide by that number of periods.

For example, letâs calculate a 5-day SMA. If the closing prices of an asset for the past five days are \$10, \$11, \$12, \$13, and \$14, the SMA is calculated as follows: SMA = (10 + 11 + 12 + 13 + 14) / 5 = 60 / 5 = 12. This means the 5-day SMA is \$12. As new closing prices are added, the oldest prices are dropped from the calculation, creating a moving average that reflects the most recent price data.

SMAs smooth out short-term fluctuations and highlight longer-term trends. A shorter-period SMA, like a 10-day SMA, is more sensitive to recent price changes, while a longer-period SMA, like a 200-day SMA, provides a broader view of the overall trend.