A moving average smooths out the noise so you can see the trend.
The simple moving average (SMA) adds up the last N closing prices and divides by N. Each new candle drops the oldest price and adds the newest, so the line "moves".
Example
Last five closes: 1.10, 1.11, 1.12, 1.11, 1.13. Five-period SMA = 5.57 ÷ 5 = 1.114.
Reading it
- Price above a rising SMA: uptrend.
- Price below a falling SMA: downtrend.
- Price crossing back and forth over a flat SMA: range.
Wick says
An SMA is like a group of friends walking together. One friend runs ahead (a spike), but the group barely changes pace.
Key takeaways
- SMA = average of the last N closes.
- It smooths noise and shows direction.
- It reacts slowly because every price counts equally.