Simple Moving Average (SMA)
Average the last N closing prices and draw them as a smooth line that filters out day-to-day noise.
Key takeaways
- 1SMA(N) = the average of the last N closes. With each new candle, the oldest one drops out and the newest one comes in.
- 2The longer the period, the smoother the line, but the slower it reacts (more lag).
- 3Price above the average is usually seen as strong, below it as weak. The direction of the average says more about the trend than whether price is above or below it.
- 4When the average is flat, price crossing back and forth over it is mostly noise.
Check your understanding
Get every question right to complete this lesson
1.The last 5 closes are 10, 11, 12, 13 and 14. What's SMA(5)?
2.If you change the moving average period from 10 to 50, the line becomes…
3.Over a month the MA20 is nearly flat, and the price crosses it 6 times. What does this most likely mean?
Text version · Trend Indicators, lesson 1: “Simple Moving Average (SMA)”
Average the last N closing prices and draw them as a smooth line that filters out day-to-day noise.
Take the average of the last N days
SMA: add up the last N closes and divide by N. Each day the oldest drops out and the newest joins, so the averaging window slides to the right.
The price of smoothness is being a step behind
The longer the period, the more single-day noise gets diluted and the smoother the line; but when price turns, it takes longer to catch up. That's lag.
Check which way the average is heading first
A rising average with price above it is usually seen as strong. When the average is flat, price crosses back and forth around it, which is mostly range noise; you don't need to treat every cross as a signal.
Key takeaways
- SMA(N) = the average of the last N closes. With each new candle, the oldest one drops out and the newest one comes in.
- The longer the period, the smoother the line, but the slower it reacts (more lag).
- Price above the average is usually seen as strong, below it as weak. The direction of the average says more about the trend than whether price is above or below it.
- When the average is flat, price crossing back and forth over it is mostly noise.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- In "SMA(5) by hand," look at the example 10, 11, 12, 13, 14: what's the average? Change 14 to 24: what's the average now? Then click "Example" to reset.
- Drag the MA period from 10 to 50: does the line get smoother or more sensitive? How do "Average lag" and "Price crosses the MA" change?
- Hover over any candle on the chart, count how many candles are in the highlighted zone, then check whether the close is above or below the average.
- Switch to "Sideways range" and set "MA period N" to 20: how many times does "Price crosses the MA" happen? How does that compare with "Uptrend"?
Quiz and explanations
- 1. The last 5 closes are 10, 11, 12, 13 and 14. What's SMA(5)?
- Answer: 12.(10+11+12+13+14) ÷ 5 = 12.
- 2. If you change the moving average period from 10 to 50, the line becomes…
- Answer: Smoother, but more lagging.The more days averaged, the less any single day's move matters.
- 3. Over a month the MA20 is nearly flat, and the price crosses it 6 times. What does this most likely mean?
- Answer: The market is ranging, and these crossovers mean little.Without a trend, price wobbles around a flat average, and the crossings are just noise.