The SMA is usually used to identify trend direction, but it can also be used to generate potential trading signals.Ĭalculating Simple moving averages - The formula for calculating the SMA is straightforward: Likewise, SMA helps in predicting the future trend and determine whether an asset price will continue or reverse a bull or bear trend. Although, this is a rough estimation and doesn’t guarantee that he’ll score exactly same runs, but still the chances are high. By looking at his previous 5 match scores- 60, 75, 55, 80, 50 you can expect him to score roughly around 60–70 runs in today’s match.īy calculating the average of a batsman from his last 5 matches, you were able to make a crude prediction that he’ll score this much runs today. Let’s say you are watching a game of cricket and a batsman comes for batting. ![]() We have studied how to compute average in school and even in our daily life we often come across the notion of it. Before we dive deep, let’s first understand the math behind simple averages. Simple moving average is calculated by adding the the closing price of last n number of days and then diving by the number of days(time-period). Simple Moving Average is one of the core technical indicators used by traders and investors for the technical analysis of a stock, index or securities. In this article, we’ll focus primarily on the strategies involving SMAs and EMAs. ![]() Exponential and weighted averages apply more weight to recent data points.Īmong these, Simple Moving Averages(SMAs) and Exponential Moving Averages(EMAs) are arguably the most popular technical analysis tool used by the analysts and traders. Simple moving averages apply equal weight to all data points. The only noteworthy difference between the various moving averages is the weight assigned to data points in the moving average period.
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