What is a simple moving average and how is it computed?

The sum of all closing prices divided by the number of periods (days) being measured.  The resulting and most recent data point is plotted and the oldest data point is dropped.  So for example, the 5 day simple moving average comprises 5 data points and the moving average is dynamic.

• Example on the QQQQ from 11/17- 23 which included 5 trading days with a weekend between the 4^th and 5^th day. 
• Closing prices
• Day 1 – $44.60
• Day 2 – $44.35
• Day 3 – $43.66
• Day 4 – $43.44
• Day 5 – $44.14
• Total = 220.19/5 = $44.038
• This data point would then be plotted as the most recent day in the 5 day simple moving average and what was the oldest day is dropped.

The moving average allows us to filter out “noise” and to determine the general direction or trend of the stock.  Various moving averages can be employed.  Some common and popular SMAs are the 5, 20, 50 and 200.  Moving averages can act as levels of support and resistance and are sometimes used as buy and sell signal on crossovers.  For instance when the shorter term average crosses from below to above the longer term average it could signal a bullish entry.  Robin

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