What does SMA (Simple Moving Average) mean?

The SMA averages a stock's closing price over the last N days to smooth out daily noise and reveal the underlying trend.

The SMA averages the closing price over the last N days. A 50-day SMA smooths out daily noise so you can see the underlying trend. Price above its SMA suggests an uptrend bias; price below suggests a downtrend bias.

SMA (Simple Moving Average) example

A 5-day SMA of closing prices $10, $11, $12, $11 and $13 is $57 ÷ 5 = $11.40. Tomorrow the oldest price drops out and the newest is added, so the line moves one day at a time.

Common beginner mistake

Treating a price crossing the average as a buy or sell signal by itself. In choppy, sideways markets those crosses happen constantly and mean little.