Stock Trading using technical indicators, such as Simple Moving Average, also referred to as SMA, could be fun. The simple moving average is calculated as the average price for last X period.
The Following is the Formula for Simple moving average:
Formula SMA = (Closing Price(zero days ago) + (Closing Price(One day ago) + ... + a1(Closing Price Period ago)) / period
Moving Averages are used to smooth the time series data to help eliminate noise and identify trends when analyzing stocks. It is one of the basic tools in the stock trading arsenal for a technical analyst.
The SMA is commonly interpreted as a trend line. Commonly used periods for SMA are 20, 50, 100, 200.
Trading StrategiesStrategy One:
- Buy if the price closes above the SMA
- Sell if the price closes below the SMA
- Buy if the SMA of 5 period crosses above the SMA of 20 period
- Sell if the SMA of 5 period crosses below the SMA of 20 period
This method is that the price of the stock cannot go up significantly without triggering a buy signal. Similarly, it cannot go down significantly without tiggering a sell signal.
It is a very simple and practical indicator that should really improve your trading results as you implement the strategy
