Simple Moving Average

What

A simple moving average is the unweighted mean of the previous number of data points. For example, a 10 day simple moving average of closing prices is the mean of the previous 10 days closing prices. Moving averages display a smoothed out line of the overall trend. The longer the term of the moving average, the smoother the line will be.

How

SMA = CP + CP-1 (day) + CP-2 (days) + CP-3 (days) … / P

Where CP = closing Price & P=Number of Periods

When calculating successive values, a new value comes into the sum and an old one drops out.

When

There are various popular values for SMA, like 10 days, 50 days, or 200 days. The period selected depends on the kind of movement one is concentrating on, such as short, intermediate, or long term. In any case moving average levels are interpreted as support in a rising market, or resistance in a falling market.