Simple Moving Average (SMA)

Definition

Simple Moving Average (SMA), also known as "Arithmetic Moving Average," refers to a numerical line calculated by averaging prices over a specific period of time. This smoothing of price fluctuations helps clarify the trend of price movements. Thus, the Simple Moving Average is one of the fundamental indicators used to observe price volatility.

Although SMA helps filter out noise and visualize the general direction of price trends, it is a lagging indicator of financial market trends based on past price data. The longer the time period of SMA, the greater its lagging effect.

Calculation

The calculation formula for SMA is as follows: select price data from a specified period in the past and calculate the average of these data points.

SMAn​= P1​+P2​+⋯+Pn / n​​

Where Pn represents the price data on day nnn, and nnn is the number of candles used to calculate SMA.

For example, for a 5-day Simple Moving Average, establish a continuous 5-day period, sum the closing prices of each day, divide by 5 to obtain the starting position of the Simple Moving Average line.

SMA（5）​= P1​+P2​+P3+P4+P5 / 5​​

Then, for each subsequent day, remove the closing price of the first day and add the closing price of the sixth day, sum up, divide by 5 again to calculate the second position of the Simple Moving Average.

SMA（5）​= P2​+P23+P4+P5+P6 / 5​​

This process continues, connecting all calculated values to form the Simple Moving Average line.

When calculating SMA, each data point has equal weight and importance, which does not account for short-term price volatility. As each time period ends, the oldest data point is dropped, and the newest data point is added to the beginning.