Technical indicators
Simple moving average (SMA)
Definition
An SMA is the plain average of the last set number of closes: a 20-period SMA adds up the last 20 closes and divides by 20. It moves more slowly than an EMA of the same length, and the 200-day SMA is a widely watched long-term trend line.
Example
Say the last 20 daily closes of a stock add up to $1,000, so its 20-day SMA is $50.00. The next day a close of $53.00 enters the window and the oldest close, $47.00, drops out: the total becomes $1,006 and the SMA rises to $50.30. An SMA can move because an old price left the window, not only because of the new close.
Hypothetical numbers, for illustration only.
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