What is SMA?
SMA smooths price action by averaging prices over a period. 50-day SMA shows short-term trend, 200-day shows long-term trend.
Think of it like this
Like tracking your average daily steps. Daily numbers jump around, but 30-day average shows the real trend - are you getting more or less active over time?
Formula
SMA = Sum of Prices / Number of Days- Price Sum: Total of closing prices
- Period: Number of days (50, 100, 200)
Why it matters
- Smooths out daily noise
- Shows trend direction
- Acts as support/resistance
- Golden cross/death cross signals
What's a good value?
Price > 50 SMA
Short-term Bullish
Above short trend
Price < 50 SMA
Short-term Bearish
Below short trend
Price > 200 SMA
Long-term Bullish
Major uptrend
Price < 200 SMA
Long-term Bearish
Major downtrend
50 SMA > 200 SMA
Golden Cross
Very bullish signal
Real-world example
Stock at $100, 50-SMA at $95, 200-SMA at $85. Stock is above both averages (bullish). If 50-SMA crosses above 200-SMA, that's a golden cross buy signal.
Things to watch out for
- Lagging indicator - follows price
- Whipsaws in choppy markets
- Less useful for sideways movement
- Different periods for different timeframes
Evaluate this indicator on 8,000+ US stocks
Download Signal Screener