Description

• This is the one of the most basic and popular indicators
• It calculates the average of price line for a specified period
• This indicator allows you to track the trend as well as smooth out ‘noise’ i.e. frequent and minor market changes that do not reflect the overall trend but may confuse the trader
• Even though SMA is an effective indicator, it suffers from the disadvantage of lag i.e. it is based on past data. Therefore it is better to use with other indicators

Interpretation

• The price line moving above the SMA indicates an uptrend suitable for Buy trades
• The price line moving below the SMA indicates an downtrend suitable for Sell trades

Default Parameters Used/Inputs

• Data line- Close line, High line, Open line, Low line or others
• Bars – number of bars for which SMA has to be calculated

Returns/Output

SMA graph line showing a smoothed out trend of stock

Formula

SMA = Sum of Price for n days/n
Where, n = number of specified bars