SMAs

Simple moving averages (SMAs) are a widely used technical indicator that smooths price data by creating a continually updated average price over a set number of periods. An SMA is calculated by summing the closing prices over a chosen window and dividing by the number of periods. For example, a 50-day SMA adds the last 50 daily closes and divides by 50. The resulting line moves more slowly than the price, filtering out short-term noise.

Common SMA periods include 20, 50, 100, and 200 days. Shorter SMAs react quickly to price changes, while longer SMAs provide greater smoothing and are often used to identify longer-term trends. SMAs are typically plotted on price charts, and traders watch the relationship between price and the SMA, as well as interactions between SMAs of different lengths.

Applications include trend identification and signal generation. When price is above an SMA, it is often interpreted as bullish, and when below, bearish. Crossovers are a common signal method: a shorter-term SMA crossing above a longer-term SMA may suggest a buy, while crossing below may suggest a sell. The terms golden cross and death cross refer to crossovers involving the 50-day and 200-day SMAs.

Limitations include lag, since SMAs rely on past data, which can delay reaction to new price moves. They can also produce false signals in sideways or choppy markets. The choice of period greatly affects sensitivity, and there is no universally optimal length. In practice, SMAs are used across timeframes and can be combined with other indicators, such as exponential moving averages or Bollinger Bands, to refine analysis.