Simple Moving Average is amongst most popular technical indicator. Amongst other moving averages, it is the most simple form. Simple Moving Average is an mathematical average taken for a period.
It is calculated by calculating arithmetic mean of a closing price of last fixed number of days. If you want to take Simple Moving Average of 20 days then you have to sum up closing price of last 20 days and then divide the total by 20 (number of days). And on next day, while totaling, you have to omit oldest figure and add newest figure and so on. Simple Moving Average can be calculated for 20,50,100 or 200 days. The shorter the time span used to calculate the average, it will be more sensitive to price changes. On other hand, when average is calculated for more days, it will be less sensitive to price change. So if you are a short term trader then use average for 10,20 or 50 days but if you are a long term trader then use 100 or even 200 days average.
Moving Averages are lagging indicators. They do not predict new trends, but confirms trends after establishing of trends. When the price is above the moving average, it indicates positive trend and vice-e-verse.
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