Simple Moving Average

A moving average is a simple mathematical function which is used in technical analysis to smooth price fluctuations. These basic functions are excellent tools to aid in the recognition of price trends. Most technical analysis indicators employ moving averages in one form or another. The least complicated of the moving averages is the simple moving average (SMA). This average is generated by adding all of the elements within the moving average period and dividing by the number of elements within it. For example, a 10 day moving average of closing prices will consist of the sum of the last 10 days of closing prices, divided by 10.

After calculating the moving average the time period slides over one day and the calculation is repeated. (This is why it is called a moving average.) The mathematical formula for the simple moving average is shown above. This is the exact formula which is used by the SysGen Moving Average Indicator.

A distinguishing feature of the simple moving average is the fact that all prices in the moving average period are considered equally important meaning they receive equal weighting as shown in the graph on the left.