Simple Moving Average (SMA)
The Simple Moving Average (SMA) is the arithmetic mean of the last N closing prices, redrawn each candle, and is the oldest and simplest way to smooth price into a trend line.
What it measures
SMA sums the last N closes and divides by N. Every bar in the window carries equal weight — the average from ten periods ago pulls just as hard as the most recent one, which is exactly what makes it slower and steadier than an EMA.
Parameters
| Name | Default | Range | Note |
|---|---|---|---|
| period | 20 | 5–200 | 20 for short-term; 50, 100 and 200 are institutional reference lines watched by most desks. |
| source | close | close, open, hl2, hlc3, ohlc4 | Close is standard. hl2 and hlc3 flatten single-print outliers on thin instruments. |
How it behaves
SMA slopes up in an uptrend, down in a downtrend, and flattens in a range. Price crossing the SMA from below is the classical long trigger; the 50/200 "golden cross" and "death cross" are pure SMA constructs and remain the most-cited trend signals in financial media.
When it misleads
The equal-weighting that makes SMA steady also makes it late — by the time a 200-SMA turns, price has already moved substantially in the new direction. Equal weight also means a single old outlier keeps moving the line as it drops out of the window ("drop-off distortion"), producing a step on the SMA that has nothing to do with recent price. Both traps are worst on daily and higher timeframes where each bar matters.
Backtest result
Sourced backtest in preparation — we're running the rule on our own historical candles before publishing numbers we can stand behind.
FAQ
- Is SMA still used today?
- Yes — the 50, 100 and 200 SMAs remain the most-referenced trend indicators on financial dashboards and by discretionary institutional traders, precisely because everyone else is watching them too.
- SMA vs EMA — which one lags less?
- EMA. For the same period, EMA weights recent closes more heavily and therefore turns sooner. SMA compensates with a smoother line and fewer false crossovers.
- What is a "golden cross"?
- The 50-day SMA crossing above the 200-day SMA on a daily chart. It is a slow, long-term bullish regime signal and has held up historically on US equity indices; on individual stocks and crypto it is much noisier.
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