SMA (3-line)

The Simple Moving Average (SMA) is one of the most popular technical indicators. A moving average is the average price of a security at a given time. However, to calculate a moving average you must select a time period used to calculate the average itself. Moving averages are among the most popular technical indicators. The traditional interpretation of moving averages focuses on price movement relative to the average itself. Investors are typically "bullish" when the price moves above its moving average and "bearish" when the price falls below its moving average. Moving averages are also very useful in smoothing noisy data. Applying a 200-bar moving average, for example, will give you a clear view of a security's long-term historical trend.

A Simple Moving Average (SMA) is calculated by adding the closing prices for the most recent n intervals of time (or "bars") and then dividing by n. For example, a 21-bar moving average references the closing price of a security over the past 21 bars. The indicator sums all 21 closing prices and divides by 21, which produces the average price over the past 21 bars. The SMA gives equal weight to each bar.

Some market technicians believe that more weight should be attributed to more recent price action. These analysts may prefer to use the Exponential Moving Average (EMA) because it does just this. For a more detailed discussion of EMA and how it is calculated, see Thomas Meyers, The Technical Analysis Course (Chicago: Irwin, 1989).

Note: If you choose a multiple moving average, the system will, by default, determine the lengths of the additional time periods based on the number in the input box. For example, if you type "9" in the input box and select "SMA (3-Line)" from the drop-down box, the system will plot three moving averages: 9 bars, 18 bars and 27 bars in length. SMA 2 is twice the length of SMA 1 and SMA 3 is three times the length of SMA 1. To override this default behavior, see the Chart FAQ on moving averages.