Forex glossary
Simple Moving Average (SMA)
SMA is the arithmetic average of the latest N observations in a selected price series. Each has equal weight; a new observation replaces the oldest. Closing prices are common inputs, but others are possible. It smooths historical data with lag rather than forecasting the next price.
Illustrative example
How does it work in practice?
Assume three closes of 99, 102 and 105 USD. SMA is 102 USD; after a new 108 USD close, the oldest observation of 99 drops out and the average becomes 105 USD.
A case to work through
An old low price drops out
Hypothetical closes are 80, 100 and 100; the new close is also 100.
- Old SMA=280/3≈93.33.
- Removing 80 leaves 100,100,100, so SMA=100 despite an unchanged latest close.
What follows? Explain the rise through the changed window composition.
Example boundary: The average is not independent evidence of new buying demand.
A useful distinction
Simple Moving Average (SMA) / Exponential Moving Average (EMA)
SMA drops the oldest observation from an equally weighted window; EMA carries the previous reading with decaying historical influence.
Check your understanding
Calculate SMA after its window shifts.
Show the answer and explanation
16
(14+18+16)/3=16.
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Related terms
Sources and documentation
- MetaTrader 5 – moving averages
SMA window averaging and EMA updates from the prior value plus a new observation.
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