Successful day trading requires mastering some basic mathematical concepts. Among them is the simple moving average, or SMA. It’s one of the oldest and most accurate ways to determine market trends, as it determines the mean price. This part of technical analysis is also a “simple” calculation to make and use. Of course, you don’t have to do this initial or subsequent calculation by yourself. The SureTrader platform retrieves the stock’s SMAs for you.

What is a Simple Moving Average Formula?

To determine an SMA formula, all you have to do is take a particular stock’s closing price for the set period of a certain number of trading days and add them up. Then divide them by the number of trading days and you have the first SMA. If you are just starting out, you might want to use at least 10 days for the initial SMA. The SureTrader platform then shows you the first SMA on the 10th bar of a price chart.

Here’s a basic 5 day example: AbbVie (ABBV) is a Pharmacuicle Company. It was a spin off from Abbot Laboratories. In the last 5 days these are their closing prices.
69.62 + 69.48 + 70.34 + 70.80 + 71.11 = 351.35
Now you can divide the SMA by the total number of days: 5-Day SMA = 351.35 / 5 = 70.27

Once SMAs are plotted on charts, they allow traders to instantly see the trending direction of the stock for the period in question.

What Are Some Popular Simple Moving Averages?

There really are unlimited numbers of SMAs you can use, but traders depend on some basic timeframes and those timeframes make up the most popular simple moving averages. A short-term timeframe lasts up to 20 days, with a minimum of five days. An intermediate timeframe lasts up to 65 days, but most traders use the 50 SMA. With an intermediate timeframe, you can identify trends for up to few months. However, the short-term SMA is the most sensitive and identifies trends faster. The long-term SMA ranges up to 200 days, or 6.5 months, and is best suited for general investment overviews for a year or more. Short, intermediate or long-term, these SMAs are the ones most often found in trading charts.

Day traders may rely on much shorter moving averages, lasting only minutes or hours.

SMA Basic Rules for Trading

The basic rules for the simple moving average trading involve looking for the trend. You want stocks either breaking out or heading downwards. When a stock crosses beneath or above a moving average, it’s a signal to either buy or sell, depending on the trend.

SMA are not used in a vacuum for trading, but are part of a trader’s toolkit, along with momentum and volatility and other technical indicators.

What Is an SMA Primary Trend?

The SMA primary trend is whether the stock is going up, down or “sideways” – basically remaining static. The SMA’s primary trend is easy to ascertain on a chart.

At SureTrader, we offer top charting software and technical analysis for clients. Take advantage of our $100K trading demo to hone your SMA trading skills before you start trading.

Disclaimer: All information provided “as is” for informational purposes only, not intended as a recommendation to buy or sell. Swiss America Securities, Ltd. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein.
Buy & Sell with Simple Moving Average

Trading With Simple Moving Average

Successful day trading requires mastering some basic mathematical concepts. Among them is the simple moving average, or SMA. It’s one of the oldest and most accurate ways to determine market trends, as it determines the mean price. This part of technical analysis is also a “simple” calculation to make and use. Of course, you don’t have to do this initial or subsequent calculation by yourself. The SureTrader platform retrieves the stock’s SMAs for you.

What is a Simple Moving Average Formula?

To determine an SMA formula, all you have to do is take a particular stock’s closing price for the set period of a certain number of trading days and add them up. Then divide them by the number of trading days and you have the first SMA. If you are just starting out, you might want to use at least 10 days for the initial SMA. The SureTrader platform then shows you the first SMA on the 10th bar of a price chart.

Here’s a basic 5 day example: AbbVie (ABBV) is a Pharmacuicle Company. It was a spin off from Abbot Laboratories. In the last 5 days these are their closing prices.
69.62 + 69.48 + 70.34 + 70.80 + 71.11 = 351.35
Now you can divide the SMA by the total number of days: 5-Day SMA = 351.35 / 5 = 70.27

Once SMAs are plotted on charts, they allow traders to instantly see the trending direction of the stock for the period in question.

What Are Some Popular Simple Moving Averages?

There really are unlimited numbers of SMAs you can use, but traders depend on some basic timeframes and those timeframes make up the most popular simple moving averages. A short-term timeframe lasts up to 20 days, with a minimum of five days. An intermediate timeframe lasts up to 65 days, but most traders use the 50 SMA. With an intermediate timeframe, you can identify trends for up to few months. However, the short-term SMA is the most sensitive and identifies trends faster. The long-term SMA ranges up to 200 days, or 6.5 months, and is best suited for general investment overviews for a year or more. Short, intermediate or long-term, these SMAs are the ones most often found in trading charts.

Day traders may rely on much shorter moving averages, lasting only minutes or hours.

SMA Basic Rules for Trading

The basic rules for the simple moving average trading involve looking for the trend. You want stocks either breaking out or heading downwards. When a stock crosses beneath or above a moving average, it’s a signal to either buy or sell, depending on the trend.

SMA are not used in a vacuum for trading, but are part of a trader’s toolkit, along with momentum and volatility and other technical indicators.

What Is an SMA Primary Trend?

The SMA primary trend is whether the stock is going up, down or “sideways” – basically remaining static. The SMA’s primary trend is easy to ascertain on a chart.

At SureTrader, we offer top charting software and technical analysis for clients. Take advantage of our $100K trading demo to hone your SMA trading skills before you start trading.

Disclaimer: All information provided “as is” for informational purposes only, not intended as a recommendation to buy or sell. Swiss America Securities, Ltd. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein.

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