The Simple Moving Average (SMA) derives the average price of a security over a specified time frame, constantly updating as new data enters while discarding the oldest set. Unlike a basic average, where all past prices hold equal weight, SMA considers only the most recent data within its designated timeframe, such as the last 10 days in a 10-day SMA.
It's crucial to understand that in SMA, all data points are treated equally, regardless of their entry date. Some traders argue that this equal weighting can be limiting for technical analysis, leading to the creation of the Exponential Moving Average (EMA) to address this concern. Stay tuned for our next educational post as we delve into the EMA. Pin our channel to stay updated on signals and educational content.
