This article has been translated from English to Gen Z Slang.
A Simple Moving Average (SMA) is like the Netflix of moving averages — pretty basic and easy to binge. 🎬
Basically, it vibes with the average price over a specific period, usually the *close* prices are its go-to.
For real tho, you get a simple moving average by adding up the last “X” period’s closing prices and then dividing that number by X.
The “moving” part? Well, as new data pops up (like a daily close price), the oldest gets yeeted, and the average gets tweaked, creating a line that rides along the price chart. 📈
Lost in the sauce???
No cap, we’re about to make it clear AF. 🔍
Calculating the Simple Moving Average (SMA)
Picture this: you got a 5-period simple moving average on a 1-hour chart. You’d add up the closing prices for the last 5 hours, divide it by 5, and voilà! ✨
Boom! You’ve got your average closing price over the last five hours! Chain those average prices together and there you have it — a moving average! If you vibe with a 5-period simple moving average on a 30-minute chart, then you’re all about adding up the last 150 minutes' closing prices and dividing by 5.If you’re feelin’ fancy with the 5-period on the 4 hr. chart… Alright, alright, we see you. You get the memo! 📝
Most chart packages are your tech besties and will do all the calculations for you. 🤖
Why the snooze fest with a “how to” on simple moving averages though? It’s like learning the clout flavors of ice cream — it’s key to know so you can remix and tweak the indicator to your flex.
Peeping how an indicator ticks let’s you adjust or drip out different strategies as the market scene changes. 🌊
Now, as with almost any other forex indicator out there, moving averages lag like your WiFi at your grandma’s crib.
Since you’re averaging out yesterday’s vibes, you’re pretty much just checking the latest flavor and guessing where the next flavor might go in the short-term.
Disclaimer: Moving averages won’t turn you into Ms. Cleo predicting the lotto numbers! 🕵️♀️🔮
Here’s an example of how moving averages get that Zen on the price moves.
On the chart above, we’ve thrown down three different SMAs on the 1-hour USD/CHF chart. As you can peep, the longer the SMA period is, the more behind it lags, like showing up fashionably late to a party. 🎉
Spot how the 62 SMA is farther from today's price than the 30 and 5 SMAs.
This is because the 62 SMA sums up the last 62 periods' closing prices and divides it by 62.The longer the period you set for the SMA, the slower its reaction times — like watching paint dry. 🎨
The SMAs in this chart deliver the market's current mood. Here, it spills that the pair is definitely vibin’ on a trend.
Instead of just focusing on today’s buzz, the moving averages level up our view, giving us the chance to gauge the future vibes. 🔮
With SMAs, we can spot if things are trending up, trending down, or Netflix-and-chillin’ with the same ol, same ol. 🍿
Here’s the T: simple moving averages can be drama queens — they’re touchy with spikes.
When that goes down, it can drop false signals. We might think a new trend’s here to start a party, but actually, nada’s changed.
In the next lesson, we’ll spill the tea on what we mean and intro you to another vibe of moving average to dodge this issue.