What is a Simple Moving Average?

What is SMA (Simple Moving Average)?

SMA is a technical indicator that calculates the average price of a security over a specific number of periods, giving equal weight to all data points. The SMA smooths price data to identify trend direction. Common periods include 20-SMA, 50-SMA, and 200-SMA.

How SMA is Calculated

Add up closing prices for N periods, then divide by N. For example, a 20-period SMA adds the last 20 closing prices and divides by 20.

Trading with SMA

• Trend identification: Price above SMA = uptrend, below = downtrend
• Dynamic support/resistance: SMA acts as bounce levels
• Crossover signals: Price crossing SMA signals trend change
• Multiple SMAs: 50/200 crossover (Golden/Death Cross)

SMA vs EMA

SMA gives equal weight to all prices, reacting slower to recent changes. EMA weights recent prices more heavily, responding faster to price action. Short-term traders prefer EMA, long-term traders prefer SMA.

Deep Dive

Most edges come from applying clear rules consistently. Expand your analysis beyond a single signal: add context from higher timeframes, recent volatility, session behavior, and catalysts. Define invalidation so a trade becomes obviously wrong fast, keeping losses small while letting winners compound.

Trader Checklist

• Higher‑timeframe bias aligns with the setup.
• Clear level or zone for entry with confluence.
• Pre‑defined stop beyond structure; 2–3R target.
• Session/liquidity supports follow‑through.
• No imminent high‑impact news unless planned.

Strategy Ideas

• Combine structure with momentum confirmation (break/close/acceptance).
• Use partials: scale out at first target; trail remainder.
• Journal results by session and pair to refine timing.

Risks and Limitations

• Thin liquidity widens spreads and distorts signals.
• False breaks around obvious levels—wait for acceptance.
• Overfitting indicators; keep the process simple and robust.

Example

Map bias on the daily chart, mark a zone, and wait on 1H for a close back above with rising participation. Enter on the retest; stop beyond the invalidation wick; target prior swing with room for extension. Record the outcome and context to iterate.