The full form of SMA is a simple moving average. This is an indicator that helps you to show the average price of some periods.
Explanation of simple moving average
In the previous article I have discussed moving average.
Buying or selling stock in the share market is also like a business. You have to buy at a low price and sell it at a higher price. so that you can earn a profit.
For example, if anyone doing business, some days businessman have earned $2 and some days $3,$4.And the end of the month(assumes 30 days in a month) businessmen’s total earning $90. then he calculates average per day income ($90/30days=$3/day). his per day’s average earning is $3 And second month’s first day if businessmen earned more than $3. this is the sign of business is growing upward. or if earning is less than $3 this means business on the downside.
Similarly, Moving average data indicate the strength of the stock price. if share price trade above the 30 days moving average price this means the stock price is stronger than before 30days price.
Investor mostly use two moving indicators, SMA & EMA.
Simple Moving average Calculation
Simple moving average is easy to calculate, you can choose all opening price or all high price, all low prices, all closing prices for calculation of moving average.
SMA Formula = (P1+P2+P3+Pn)/n. Here P= price of periods. n= no of periods / or no of candle.
If 3 days closing price of the stock is like, 1st day’s closing price $20, 2nd day’s closing price is $22, and 3rd day’s closing price $23. Then 3days simple moving average calculation will be {($20+$22+$23)/3}=$21.67.
SMA Indicator Uses
Some investors use SMA and some investors use EMA. Or some investors use both indicators.simple moving average indicator give weightage to all periods price equally that why investors use this as a strong support or resistance zone. SMA indicator shows strong support or resistance zone, sometimes EMA(exponential moving average) indicator shows false support or resistance zone. so that’s why some investors use this indicator. By using this indicator no one can tell you the future of the stock price.
SMA Indicator Strategy
To calculate 50 days moving average, first set each candle to show 1day data from the chart. then go to indicators section & select moving average. multiple types of moving average available in the moving average section. choose Simple and select periods 50days. (set candle 1day >Indicator> Moving average>simple>set periods 50).
Conclusion
SMA is an indicator that helps you to get a simple average price of some periods. And Indicator line shows you stock price strength. also, help you to find out better Support and resistance zone. some investors don’t like to use the EMA indicator because sometimes EMA shows a false signal. That’s why some investors use simple moving average indicators or both indicators.
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