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8.1 Simple Moving Average

An N-day simple moving average is the unweighted average (mean) of the past N days. So if p1 is today’s closing price, p2 yesterday’s, etc, then the SMA for today is

      p1 + p2 + ... + pN
SMA = ------------------

Because old prices have the same weighting in the average as recent prices, the SMA can be rising merely because old lower prices are dropping out of the window. The weighting of past days also makes it seem to lag behind recent action. The EMA (see Exponential Moving Average) and WMA (see Weighted Moving Average) approaches address that sort of lag.

See also Momentum and Rate of Change, which show the slope of the SMA.

Copyright 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2014, 2015, 2016, 2017 Kevin Ryde

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