The simple moving average (SMA)

The SMA takes data from a set period of time and produces the average price of that security for the data set. The difference between an SMA and a basic average of the past prices is that with SMA, as soon as a new data set is entered.

the oldest data set is disregarded. So if the simple moving average calculates the mean based on 10 days’ worth of data, the entire data set is constantly being updated to only include the last 10 days.

It’s important to note that all data inputs in an SMA are weighted equally, regardless of how recently they were inputted. Traders who believe that there’s more relevance to the newest data available often state that the equal weighting of the SMA is detrimental to the technical analysis.

The exponential moving average (EMA) was created to address this problem.

We will discuss about EMA in our next educational post. Pin our channel on top to never miss a signal or educational post.

See also  Moving Averages