Simple Moving Average

 Simple Moving Average: Simple Moving Average or SMA is a moving average which is calculated by adding the closing price of security prices for the last n-periods and dividing it by the total number of time periods. For example, suppose we want to calculate the 9 periods SMA of a security price. First, we will add the last 9 Days Closing Price of the security and then it will be divided by the 9 periods. 

Calculation for 9 periods SMA: 

(P9+P8+P7+P6…. +P1)/9 

Where, P=Price  P9= Closing Price 9 days ago SMA is a Technical indicator which is represented by a line and it is directly plotted on the security price. As per the choice of the trader, the periods can be changed in the SMA indicator. For shorter-term SMA, we can use 5,8,13 etc. For Medium term 20, 34, 50 and for longer term 100,200 can be used. If a medium term moving average is having a positive slope, the trend is considered to be positive in medium term and vice versa. Price breaching a particular moving average from down to up is considered a bullish sign. Similarly, price breaching a particular moving average from upside and closing below is considered bearish. If we find a shorter term moving average crossing a medium term moving average from below, often this is called bullish crossover. On the other hand if a shorter term moving average crosses a medium term moving average from upside to below that is called a bearish crossover and often considered a signal of bearishness.