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1. Simple Moving Average (SMA)
The Simple Moving Average, or SMA, is the most straightforward of the bunch. It calculates the average of prices over a specified period equally. Here’s how it works:
SMA = (Sum of Closing Prices for n Periods) / n
Sum of Closing Prices for n Periods: Add up the closing prices for the number of periods you’re interested in (e.g., 10 days, 50 days, or 200 days).n: The number of data points or periods you’re averaging.
For example, to calculate a 10-day SMA, you would add up the closing prices of the past 10 days and divide by 10.
SMA Use Case: SMAs are excellent for identifying longer-term trends. They provide a smoother line on the chart but may be less responsive to recent price changes compared to other types of MAs.
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