The simple moving average (SMA) is a straightforward technical indicator that’s obtained by summing the recent data points during a given set and dividing the entire by the amount of time periods. Traders use the SMA indicator to get signals on when to enter or exit a market. An SMA is backward-looking, because it relies on the past price data for a given period. It are often computed for various sorts of prices, i.e., high, low, open, and close.
In financial markets, analysts and investors use the SMA indicator to work out buy and sell signals for securities. The SMA helps to identify support and resistance prices to obtain signals on where to enter or exit a trade.
When generating the SMA, traders must first calculate this average by adding prices over a given period and dividing the entire by the entire number of periods. The information is then plotted on a graph.
The formula for Simple Moving Average is written as follows:
SMA = (A1 + A2 + ……….An) / n
where- A is the average in period and n is the number of periods