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Use simple and effective SMA road to increase profits

SMA road is a basic technical indicator, constructed by calculating a simple average of closing prices over a certain period. This helps traders easily recognize the general trend of the market. Join Forex Trading to learn more details about SMA Road through this article.

Get to know about SMA road

It can be said that the SMA road is the most popular tool in financial market technical analysis.

What is SMA road?

What is SMA line? (Simple Moving Average) is a moving average that shows price fluctuations (usually closing prices) over a certain period.

SMA road is a basic tool in technical analysis, helping investors identify trends and fluctuations in asset values. Calculated by summing the most recent values and dividing by the number of data points.

Common SMA moving averages

SMAs in Forex technical analysis are classified based on the closing price cycle. For example, popular SMAs like SMA 10, SMA 5, or SMA 200 are moving average based on closing prices in the past 10, 5, or 200 days.

In reality, there are no specific guidelines on which type of SMA to choose. Each investor’s habits and price analysis methods will determine the appropriate type of SMA.

Currently, there are three main types of SMA:

Short-term SMA: Includes SMA 10, SMA 14, and SMA 20. These are moving averages used to analyze short-term price fluctuations.
Medium-term SMA: Such as SMA 50, are moving averages used to analyze price fluctuations over the medium term.
Long-term SMA: Includes SMA 100 and SMA 200. These are moving averages used to analyze long-term price fluctuations.

See more: Average line What is Forex that cannot be ignored?

What should you keep in mind to trade effectively with SMA Road?

You should combine SMA road with other indicators and technical analysis methods to make accurate trading decisions.

How to calculate the SMA road index

If you understand the concept of SMA (Simple Moving Average), let’s learn how to calculate it. The simple formula to calculate the SMA road index is as follows:

SMA = (G1 + G2 + … + Gn) / n

In there:

G1 – Gn: is the closing price in a period that needs to be determined on average.
n: number of days in the average determination cycle.

For example, to calculate the SMA for the last 10 days, we need to take the average closing price of those 10 days. Similarly, SMA 50 is the average of the closing prices for 50 consecutive days.

When calculating SMA, there are a few things to keep in mind:

You can adjust the SMA to suit different periods.
Once results are available, SMA helps investors identify the price trend of Forex transactions. If the SMA road goes up, the stock price may be increasing, conversely, if it goes down, the price is falling.

Today, exchanges provide tools for investors to easily plot SMA charts and perform accurate analysis. Therefore, using these built-in utilities is what investors should do.

Effective trading strategy with SMA indicator?

Detecting a Buy Signal:
When the asset price crosses the moving average (SMA) from bottom to top, this is a buy signal. To confirm this signal, we can check whether the short-term SMA has crossed above the long-term SMA:

Crossing SMA20 indicates a short-term price uptrend.
Crossing SMA50 indicates a medium-term price uptrend.
A long-term bullish signal appears when SMA30 surpasses SMA50.
When the price line exceeds SMA20 and SMA20 exceeds SMA50, the two lines touch each other and point up, indicating an upward price trend.

Detecting a Sell Signal:
When the asset price reaches the SMA and starts going down, this is a sell signal. To confirm this signal, we can check whether the short-term SMA has crossed below the long-term SMA:

The short-term downtrend appears when the price line surpasses SMA(20).
The medium-term downtrend appears when the price line surpasses the SMA(50).
A long-term downtrend appears when the price line surpasses the SMA(100).
Long-term signal shows a long-term downward price trend when SMA(20) surpasses SMA(50).
When SMA(20), SMA(50), and SMA(100) touch each other and point down, this is a signal of a downward price trend.

Note about Delayed Signals:
Sometimes, buy or sell signals from SMA may be delayed compared to reality. The price line can peak before SMA(20) peaks, and SMA(50) can peak even later.

Instructions for trading with SMA moving average

Moving averages (SMA) are an important tool in technical analysis, allowing investors to effectively reflect price movements. This makes the use of SMA indispensable for investors. Specifically, identifying buy and sell signals through SMA can be done as follows:

Buy signal determined via SMA:

There are some points that new investors need to keep in mind when placing a buy order:

When the price line crosses one of the SMA20, SMA50, or SMA100.
When SMA20 crosses SMA50, this is a signal of a long-term price uptrend, so it is recommended to buy.
When the price line surpasses SMA20 and both SMA20 and SMA50 are pointing up, along with these lines touching each other and moving up, this is also a signal that the price is on an uptrend and should be bought.

Sell signal determined via SMA:

In addition to buying signals, through SMA it is also possible to notice selling signals:

When the price line crosses one of the SMA20, SMA50, or SMA100 from top to bottom.
When SMA20 slips below SMA50, this indicates a long-term bearish trend, and selling is recommended.
When the price line crosses below SMA20 and both SMA20 and SMA50 are pointing down, along with these lines touching each other and going down, this is also a signal that the price is bearish and should be sold.

Trade effectively with the SMA indicator

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What does SMA mean in trading?

Predicting market trends SMA can assist investors in predicting future market trends. When the short-term SMA crosses the long-term SMA from the bottom up, it is a buy signal. On the contrary, when the short-term SMA crosses the long-term SMA from top to bottom, it is a sell signal.
Besides SMA technical analysis support and resistance can also be used with stocks. When a stock price crosses the SMA, this can be a bullish signal. And when the stock price reaches the SMA, it can be considered a resistance level.
High-reliability SMA is a simple and widely used indicator. Therefore it has high reliability. It can also be combined with other indicators to increase the accuracy of trading signals.
Determining entry points, stopping loss, and taking profit SMA can help investors determine entry points. When the price crosses the SMA, this could be an entry point. When the price reaches the SMA, it can be considered a stop loss or take profit point.

Should I use EMA or SMA Road?

When using the EMA, choosing a short period is the best choice. If you want a moving average that reflects price activity more quickly. This helps you catch price trends early and increase your chances of making profits.

On the contrary, when using SMA, choosing a longer period is the best method. If you desire a moving average that is flatter and reflects slower price action. Although this line reflects more slowly. But it helps avoid some mistakes. However, the unfortunate thing is that sometimes it can be too slow.

SMA is suitable for trend-following investors, focusing on long-term analysis. And look for buy/sell signals, while the EMA is suitable for momentum investors. Emphasize short-term analysis and finding short-term trading opportunities.

Conclude

SMA road is an important and versatile technical analysis tool in financial trading. Although simple, it has great power. SMA helps traders identify market trends and find entry and exit points when trading. At the same time, it provides information about the level of market volatility. So, through the above article, we hope Forex Trading has provided you with a better understanding and understanding of SMA road. Don’t forget to follow our articles in the future to gain more trading experience!