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What is a Simple Moving Average (SMA)?
A simple moving average is one of the types of moving averages. It is an arithmetic calculation achieved after adding the closing price for the selected period divided by the number of candles.
There are two types of simple moving average i.e. short-term averages and long-term averages where the short-term average responds quickly to changes in the price of the underlying security while the long-term average reacts slowly. When these two lines intersects each other it generates buy and sell opportunities.
The formula for the simple moving average can be
SMA = C1 +C2 …Cn / N
Where Cn = The price of an asset at a period n
n = the number of total periods.
The calculation of a simple moving average is very easy. Suppose you want to find the SMA of the last ten candles. now, what you need to do is just add the closing price of the last ten candles and then divide it by ten. In past the traders had to calculate the SMA on their own and then put the same in the chart however luckily, In the Pocket Option, you don’t need to apply any mathematics as the calculation work is already done by Pocket Option software.
Key Facts
- The Simple moving average is one of the types of moving averages that calculates the average price of a security over a specific period of time divided by a number of periods.
- The SMA is considered a lagging indicator which means it reflects the past price data rather than the future price.
- The SMA is calculated by adding up the closing price of a security for a specific number of Periods and then dividing it by the given number of periods.
- This Indicator weighs equal weight to each price point which means the oldest price will have the same impact as the newest one.
How to add an SMA indicator on the Pocket Option chart
The first thing you need to do is log in to your Pocket Option account. just enter your email, and password and click login. next click on the indicator box and search for moving average.
Now, click on the pencil icon and change the period to 14.
Similarly, select one more moving average from the menu and change the time period to 30.
Also, change the colour of the line by clicking on the styles icon.
How to Trade using the SMA crossover on Pocket Option?
Trading with the SMA indicator is very easy. Your main focus should be on the intersection of two SMA lines. when they intersect each other it creates buy and sell signals.
Line 14 is a short-time average that reacts quicker to price changes while line 28 reacts slower to price changes. When line 14 intersects line 28 from the bottom it is a signal of a bullish trend and here we can place a buy trade similarly when line 28 intersects line 14 from the top it is a signal of a bearish trend.
Given above is a USD/ JPY chart, and we can clearly see that line 14 intersects line 28 from the bottom and later line 14 stays above in a bullish uptrend it is a signal of a bullish trend and here we can place a buy trade.
Similarly, Given above is a USD/ JPY chart and we can see that line 14 intersects line 28 from the top but stay below line 28 and it is a signal of a bearish trend and here, we can place a sell trade here.
So, this is how you trade with a simple moving average. Trading with a simple moving average isn’t any rocket science the concept is very easy you just need to practice this strategy on the Pocket Option demo account and once you practised enough shift to the Pocket Option real account. Till then I wish you a happy trading and best of luck.
Read Next: What is EMA and how to use it on Pocket Option?
