![]() ![]() It is calculated by adding the 20 most recent closing prices and dividing the sum by 20. On the next graph we can see another moving average, a 20-day SMA (the red line). We can construct moving averages of different lengths. Simple moving averages may differ in length This, of course, will be valid, if we keep the period number unchanged. If we apply the SMA on a 1-hour chart, it will show the average closing price for the past 10 hours. In case we use a 15-min chart, where each candle stands for a 15-minute period, the SMA indicator will show the average closing price for the past 10 periods, or 150 minutes. Tomorrow, when calculating the SMA, the trading platform will replace candle number 10 on graph 1 with the most recent candle, or the candle for the current day.īeginner traders should note that simple moving averages can be calculated for different time frames. What can we observe in the table above? It seems that all the close prices remain the same with the exception of just one – that of the 10th day. So, the new 10-day SMA has a value of 0.8938. At the same time, we should take into account the candle, which stands before candle number 10 on graph 1. Now candle number 1 on graph 1 will not be taken into consideration when calculating the new SMA, as it has not yet closed. Let us move one day back and imagine the same situation as above. What do we mean when saying that the SMA is moving across price action? So, the 10-day SMA has a value of 0.8921, exactly the same as shown in the rectangle above. We have to sum all the close prices and divide the sum by the number of periods (days). Now, let us present the close prices of the 10 marked candles. It is how the moving average indicator moves across the graph. Tomorrow, in order to estimate the SMA value, candle 10 will be replaced with the current-day candle, which will already be closed. Therefore, it cannot be used in our calculation. The most recent green candle has no SMA, because the trading day is not over yet and, respectively, there is no closing price. We count the candles in the opposite direction, because moving averages take into account the most recent number of periods. The marked candles represent the periods (10 days, because we use a daily chart), which closing prices take part in the calculation of the SMA. On the chart above we can see a 10-day simple moving average (the black line), with its value shown in the red rectangle (0.8921). Let us look at the following graph (graph 1). Third, to calculate a simple average value of these prices. Let us use the closing prices in our case. Most moving averages of prices are based on closing prices, but these averages could also be estimated with the use of highs, lows, daily means etc. Second, to decide what type of prices we shall use. Let us use the 10 most recent trading days (sessions). First, to define a number of trading sessions (periods), which will be used in the calculation. ![]()
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