Simple Moving Average (SMA)

Trend Overlay

Description
Moving averages are one of the core indicators in technical analysis, and there are a
variety of different versions. SMA is the easiest moving average to construct. It is
simply the average price over the specified period. The average is called "moving"
because it is plotted on the chart bar by bar, forming a line that moves along the
chart as the average value changes.

How this indicator works

SMAs are often used to determine trend direction. If the SMA is moving up, the
trend is up. If the SMA is moving down, the trend is down. A 200-bar SMA is
common proxy for the long term trend. 50-bar SMAs are typically used to gauge
the intermediate trend. Shorter period SMAs can be used to determine shorter
term trends.
SMAs are commonly used to smooth price data and technical indicators. The
longer the period of the SMA, the smoother the result, but the more lag that is
introduced between the SMA and the source.
Price crossing SMA is often used to trigger trading signals. When prices cross
above the SMA, you might want to go long or cover short; when they cross below
the SMA, you might want to go short or exit long.
 SMA Crossing SMA is another common trading signal. When a short period SMA
crosses above a long period SMA, you may want to go long. You may want to go
short when the short-term SMA crosses back below the long-term SMA.

Calculation
SMA is simply the mean, or average, of the stock price values over the specified
period.

Related Indicators
Exponential Moving Average (EMA)
 EMA is similar to Simple Moving Average (SMA), measuring trend direction over a period
of time.

Technical analysis focuses on market action — specifically, volume and price. Technical analysis is only one approach
to analyzing stocks. When considering which stocks to buy or sell, you should use the approach that you're most
comfortable with. As with all your investments, you must make your own determination as to whether an investment
in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial
situation. Past performance is no guarantee of future results.

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