In day trading, the average price of a security at a specific time period is named the simple moving avg. It is the earliest and today by far the most commonly used technical indicator in day trading. The probably explanation why the most well-liked among other moving averages is the simple moving avg. has to be that it is by far the easiest one to use. A short reference to it would be the SMA.
The simple moving average or the SMA is used in day trading as a way of smoothing out price fluctuations. This is done by getting the sum of the security prices over a particular period. Say for instance, selecting a thirty-minute graph on which to plot a ten period simple moving avg. In this situation, the closing costs over the last three hundred minutes are to be used. The time range of closing prices came from multiplying the number of periods and the thirty-minute chart utilized. The sum of the closing costs is then divided into ten. The ultimate figure is the average security price at a certain period and a string of these will be the moving average. In a series of this, as newer numbers get included, previous figures get disposed of.
In today’s day trading era, computing for the simple moving avg. is not called for and is done by readily available charting bundles. To completely gain benefit from the charting program, a basic familiarity with how SMA is necessary.
Attributes of using the simple moving average as a day trading indicator are its convenience and the more expansive view it gives to the day trader. One disadvantage will be the gaps that a day trader may see with the simple moving average.