Simple Moving Average (SMA)

simple moving average (sma)

what means 'sma'?

Simple Moving Averages are used to identify bullish and bearish trend directions. This indicator determines resistance and support levels and is often utilized in combination with EMA‘s.

How to measure the 'sma'?

The SMA is calculated with the closing prices for a certain number of time periods divided by the total number of time periods.

E.g. the SMA 200 is based on 200 time periods whereas the SMA 50 is based on 50 time periods. The larger the number the less reactive the SMA.

how to use 'SMA'

The SMAs 10 to 20 are often used by short-term traders. The SMA 50 is better suited to identify mid-term trends, the SMA 200 is the best choice detecting long-term trend signals. Basically one can say that as long as the short-term averages are above the long-term averages the market remains in a bullish state. As soon as the short-term averages are below the long-term averages it indicates a turn towards a bearish state.

Short-term averages may show you levels of support when the course experienced pullbacks.

SMA support levels
Bitcoin Chart from January 2018 to November 2018. Source: TradingView

The Bitcoin chart above shows the price movement from August 2016 to November 2016. It is clearly visible that the SMA 100 and the SMA 50 acted as support levels of Bitcoin. The opposite is true as soon as the SMA hits resistance levels as shown in the image below. Those must be overcome or elsewhere the market won’t turn bullish in the near future. 

An SMA 200 resistance level for Bitcoin.
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