Thursday, 4 April 2019

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Simple Moving Average (SMA)
A simple moving average (or SMA) is also known as arithmetic moving average.
The (SMA) is an average of the closing price of Stock over a specified number of periods. Here the moving average changes based on the changes in stock price.
Simple Moving Average strategy
i) 5 day moving average (green line)
ii) 10 days moving average (Blue Line)

Based on the chart above: 
The average of the closing price for the past five days is nothing but the stock’s five day moving average. We can observe that, as there is advancement in “Moving average” the previous data is declined.
The short-term fluctuations in the crude prices are balanced by the Moving Average. This helps us to get a clearer picture of the market trend.
We can remark that, as the crude price increases, the short-term moving average crosses over the long term Moving Average. Correspondingly, when the stock price falls, the long-term moving average crosses over the short-term moving average. This crossover shows the change in the price trends. Let us consider the SMA serves us as both, Support and Resistance level.
Support Level - When Moving Average is below the stock’s current market price.
Resistance Level – When Moving Average is above the stock’s current market price.
Crossover of five-days and ten days Moving Average is used as entry and exit points by some traders.
When the five-days SMA cross over the ten-days SMA, it’s used as an “entry signal”. When the ten-day (SMA) crosses over the five-days (SMA), it’s used as an “exit signal” in an “uptrend” and vice versa in a “downtrend”.

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