Simple moving average
A simple moving average (SMA) is the mean of the previous n data points. For example, a 10-day simple moving average of closing price is the mean of the previous 10 days' closing prices. If those prices are p M, p M − 1... p M − 9 then the formula is
( p M , p M − 1... p M − 9 ) / 10
In all cases a moving average lags behind the latest data point, simply from the nature of its smoothing. An SMA can lag to an undesirable extent, and can be disproportionately influenced by old data points dropping out of the average. This is addressed by giving extra weight to more recent data points, as in the weighted and exponential moving averages.
Notes and references
- http://en.wikipedia.org/wiki/Moving_average
See also
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