Simple Moving Average (SMA)
Simple Moving Average ( SMA ) is calculated by adding the last period “X” at the closing price and dividing it by “X” for example we will plot a 5 period simple moving average on a 1-hour chart. And we automatically add the closing price of the last 5 hours then we divide by 5. And we have got the average closing price in the last five hours. Next we only need to line up all the closing prices of the average and we have a moving average.
If we want to plot 5 (five) periods of simple moving average on the 10-minute chart we only have to add the closing price from the last 50 minutes then share it with the period of 5.
Likewise, if we want to plot 5 (five) periods of simple moving averages on the 30-minute chart we only have to add the closing price of the last 150 minutes then divide it by the period of 5.
However, you don’t need to bother counting this high school because it has automatically been calculated by our trading platform because if we count the fear just wrong 🙂 and according to the simple name, simple moving average is very easy to calculate, bro 🙂 just all we need to know is how to get the numbers that have been provided by the trading platform so that we will understand when setting it up.
Understanding how an analytical indicator works will help us to be able to use it according to market needs and conditions.
And like most other indicators simple moving average is an indicator that has a delay in its appointment so that what is conveyed is a past and a future estimate. This is because the calculated price is the past price.
The following is an example of a simple moving average!
On the chart above we draw 3 simple moving averages in a 1 hour period to trade USD / CHF currency pairs and as we see that the larger the period taken the greater the delay.
Note that 62 high schools are far compared to 30 high schools and 5 high schools. This happens because 62 high schools are obtained from the closing price of 62 periods and divided by 62. So it can be concluded that the longer the period you use, the more late you react to price movements at this time.
Using the moving average we are not only able to see the current price conditions but are able to give a broader view of the next price movement. Whether the price will continue to increase (uptrend), decrease (downtrend) or even consolidate.
But there is one drawback to this simple moving average, which is that it will give a false signal when there is a surge when there is no significant thing in the market. And we will discuss this in the next discussion so don’t forget to follow the next episode, bro 🙂 .