SMA

After holding a poll in our story today Simple Moving Averages (SMAs) were voted to have a tutorial on.

SMAs are probably the most popular technical analysis tool for traders and investors in all markets. Averages are a big factor of technical analysis and are used to determine many indicators, like the MACD. They are calculated by adding recent closing prices and then dividing that by the number of time periods in the calculation average. My favourite is the 50, 100 and 200 MA.

There are several ways to use averages, the most popular being crosses. Two popular crosses include the death cross and a golden cross. A death cross occurs when the 50-day simple moving average crosses below the 200-day moving average. This is considered a bearish signal, that further losses are in store. The golden cross occurs when a short-term moving average break above a long-term moving average (50 MA over 200 MA). Reinforced by high trading volumes, this can signal further gains are in store. Moving averages can sometimes be used for support and resistance too in conjunction with other indicators.

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