How to Calculate the Simple Moving Average (SMA)

Example: 50 day SMA

If you look at the 50 day moving average starting the 50 day time period on 1st June, you get your first data point on the 20th of July. On the 21st of July you get your second data point covering the 50 day time period from 2nd June to 21st July. Your third data point then is the average of the closing prices from 3rd June to 22nd July, your fourth data point is then the average of the closing prices from 4th June to 23rd July. In this way you slowly get an averaged price chart that smooths out short term price swings. You can understand now as well why it is called moving average. It is because the fixed time period (here: 50 days) is floating or moving ahead as time (here: days) passes by. You can calculate the SMA basically for any time frame, however it is often looked at on a higher time frame, normally up to the 200 day time period.

Calculation of Data points for SMA: A1+A2+A3….+An /n

A1,A2, A3, …. An = (closing) Prices

n = Total number of prices within the chosen time period

Most charting software instantaneously will do all the calculations for you. However, you will be able to utilize the SMA better to your advantage with a better understanding of how its data is gathered.