![]() The calculation starts out the same as the SMA but is modified so the most recent data points in the series have more weight than the older ones. The exponential moving average (EMA) is the more sophisticated cousin to the SMA. With each new day moving forward, the first day of that 10-day series would be dropped from the calculation and the new day would be added. ![]() For stocks, it’s calculated by adding together all closing prices for a specific number of time periods, then dividing that total by the number of periods.įor example, if a trader wanted to find the current 10-day SMA of a stock, they’d add up each of the closing prices for the last 10 days and then divide by 10. What is the simple moving average?Īs the name might imply, the simple moving average (SMA) is the most basic form of this technical indicator. They do not predict price direction instead, they define the current direction with a lag. Moving averages smooth price data to form a trend-following technical indicator. Understanding which moving average to use and when to use it is important to understand before adding moving averages to your charting basics toolbox. Guess what? There are several types of moving averages, based on different calculations. Of the hundreds of technical analysis studies and indicators available for traders, perhaps none is more widely used than the moving average.
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