Simple Moving Average (SMA)

As you know, an average is calculated by summing the values of a given number of elements within a set, and then dividing that result by the number of elements that set contains. E.g.:

{1 + 2 + 3 + 4 + 5} / 5 = 15 / 5 = 3

A moving average is essentially the same thing, but done multiple times using equivalent-sized sets. In technical analysis, the resulting values of these repeated calculations are plotted on a chart. It is this approach that is referred to as a simple moving average (SMA).

By using an SMA to represent price values, you can get some insight as to the general velocity of those price movements over time, as the angle of the SMA line will increase in verticality as the relative increase in prices rises (and likewise in the inverse direction).