Simple Moving Average

A Simple Moving Average (Or SMA) Is Also Known As Arithmetic Moving Average.

The (SMA) is an average of the closing price of crude over a specified number of periods. Here the moving average changes based on the changes in crude price.

 Simple Moving Average Strategy

1) 5-day moving average ( Green line )

2) 10 days moving average (Blue Line )

Based on the chart above: The average of the closing price for the past five days is nothing but the crude’s five-day moving average. We can notice that, as there is advancement in “Moving average” the previous data is dropped.

The short-term fluctuations in the crude prices are balanced by the (MA). This helps us to get a clearer picture of the market trend.

We can notice that, as the crude price increases, the short-term moving average crosses over the long term (MA). Similarly, when the crude price falls, the long-term moving average crosses over the short-term moving average. This crossover shows the change in the price trends.

Let us remember that, the (SMA) serves us as both, Support & Resistance levels.

Support Level - When (MA) is below the crude’s current market price.

Resistance Level – When (MA) is above the crude’s current market price.

Crossover of five-day & ten-day (MA) is used as entry & exit points by some traders.

When the five-day (SMA) crosses over the ten-day (SMA), it’s used as an “entry signal”. When the ten-day (SMA) crosses over the five-day (SMA), it’s used as an “exit signal” in an “uptrend” and vice versa in a “downtrend”.