All language subtitles for 2. Simple Moving Average (SMA)

So there are several different types of moving averages out there and really the building block one

is the simple moving average.

It's the easiest to understand and really the most common one that's used to.

So let's look at that, how that's being constructed and how we can apply that.

So simple moving average is basically looking at prices over a time period.

So in this example, let's say we were looking at the price of a security over 20 days and you can see

the prices at twenty and twenty four and twenty two.

And you're going back.

You know, the most recent price would be twenty nine to the far right.

And you go to the left in the 10 days ago was at 20.

So you do the average where you basically the basic math problem.

Right.

You add up the numbers, you divide by 10 periods there.

The average is twenty four point five.

Right.

And then that's your average based on that time frame.

And then on the 11th day, you now drop your day one figure, the 20 to the 20 unit and you add in one

of the current one is the next one.

So on the 11th, they would say, let's say, for example, is thirty two.

And you can see we now recalculate our moving average and it becomes twenty five point seven would now

be our average over that 10 day period.

And you keep repeating the process, you know, dropping, adding, and that gives you this range of

prices.

Right.

And that's the simple it's a simple way of doing it's a simple moving average.

And you're going to basically show a line how it's going to be graphically and visually represented,

showing these prices over time and how they change going from twenty four of them to twenty five that

might go down or up.

And in this example here.

And so if we look at a chart how this might look.

Yes.

Here's our candlestick price chart here for Proctor and Gamble.

And you can see our candlesticks here and the prices, they're going up and they're going down looking

from the far left for farther back in time to the far right to the more current time frames.

And so let's say we want to see a simple moving average.

What would that look like if we applied it to this price chart?

So what you do is you input some some data.

So into your platform, very easy.

Just have to put basically, you know, one number basically, which is you have to choose what moving

average you want.

You have to put the time frame.

So if we look in the upper left, there were five inputted for a moving average or simple moving average

would be 50.

That would be, let's say, 50 time periods, let's say their days.

So that would be 50 days.

And I put another one on the chart in pink for a moving average over 200 days just to show the difference

between them.

So if we look at our price chart now, we see a blue line and a pink line going across there.

And you can see that the blue line, the more recent look back of only 50 days is showing where it's

actually crossing over some of the prices, where some of the prices, the most recent prices are above

or below the line.

And you can see if we average it out over two hundred days, that never happens to cross over.

Sometimes it can.

It's just in this example, it's not so far.

Look at this moving average.

If I look at this chart now, I would say, oh, to the far left, there's not really much change.

It doesn't cross the line.

And then it's cross in line for the blue line.

The fifty day moving average and the 200 day moving average is just kind of off there, off by itself.

Now, let's change the numbers a little bit and see how that might look a little different.

So let's say I go in and I input and I change one of my moving averages to be only ten days as far as

a look back and the other one, the pink one to be only 30 days.

What does that look like?

And as you can see here, it looks quite a bit different right now.

Both lines are crossing over at points, crossing over where the price bars are, where the candlesticks

are, and sometimes they cross over each other as well as far.

And what does that mean?

And then we actually mean something about how we trade on whether these are crossing prices are crossing

over each other is a key, key indicator we're going to learn about before I now just think about when

I change my inputs, you know, what does that change to my simple moving average as far as the look

on it?

In addition, you can see how we were using candlesticks, but sometimes people like to look at moving

averages with like a line chart.

And here's an example here on the 50 day moving average over a line chart where the prices are more

of a line as opposed to, you know, candlesticks, candlesticks can tell you a lot more.

But sometimes a line chart is helpful just for you to see where the crossovers happen.

So it can be visually kind of pleasing in that manner.

As you saw, we can decide to have more than one moving average on a chart.

Usually folks will have one.

Sometimes they'll have to.

But you can have more on there if you want as well.

That's up to you.

As for how many moving averages that you want to have, and they'll be impactful as far as when we get

into how to really leverage this, which is with the crossover role, which is our next lesson when

we're going to talk about, all right, this is great.

We have these lines on this chart.

Now, what does that mean and what do we do with them?

And that's the next lesson.