What Is Simple Moving Average (SMA)?
The average closing price over a set number of trading sessions or weeks.
The Full Definition
A simple moving average adds up the closing prices for a set number of periods and divides by that number. A 200-day SMA is the average close of the last 200 trading sessions; a 100-week SMA uses the last 100 weekly closes. Each new period drops the oldest price and adds the newest, so the average moves slowly and smooths out day-to-day noise. Long moving averages work as reference levels: where the price sits against them shows how far it has run above, or fallen below, its own longer-term trend. A moving average describes the past. It doesn't predict where the price goes next.
Real-World Example
If a stock closed at $100, $102 and $104 over three days, its 3-day SMA is $102. Wealth Catchers maps the 100, 200, 253 and 400-period SMAs on both the daily and weekly charts in Entry Point Analysis.