Simple moving average (SMA)

Also seen as: SMA, moving average, MA, rolling average.

How is a simple moving average calculated?

A simple moving average adds up the last N values of a series and divides by N, then repeats that at every new point.

where: $P_t$ is the series value at time $t$ (the closing price, for a price series), $N$ is the number of periods in the lookback window, and $\text{SMA}_N(t)$ is the mean of the most recent $N$ values including the current one. Each new point drops the oldest value out of the window and takes the newest one in, which is what makes the average "move".

How does the lookback window change an SMA?

A longer window makes the average smoother and slower; a shorter one makes it closer to the raw series. Because the average always looks backwards, it lags the series by construction: after a turn in the underlying series, the SMA keeps carrying older values until they age out of the window, and the longer the window, the longer that takes. This is the standard trade-off of any moving average — less noise, later reaction.

Defaults in Fincanva

• A simple moving average is one of four Indicator options on a risk condition's series, alongside "Raw price", "Percent change", and "Average momentum".
• With "Simple moving average" selected, a Period field appears next to the indicator; you type the number of periods the average covers. The app then names the resulting series in days — for example "SPY 200-day SMA" in a condition's summary line.
• The indicator only transforms the series being watched. Whether the strategy switches to its Risk-Off allocation is decided by the condition's thresholds, not by the average itself.
• Fincanva ships a ready-made condition built on this indicator, the "S&P 500 200-day moving average" risk template.

Worked example

Take a 200-day simple moving average of a price series. On each trading day, the SMA is the sum of the last 200 closes divided by 200. If the closes over a stretch average out to 400, the SMA reads 400 while the latest close might be 415 — the price sits above its own average, which is what "above the 200-day SMA" means. If the price then falls to 380 and stays there, the SMA does not drop to 380 with it: it eases down day by day as older, higher closes leave the 200-day window and newer, lower ones enter. Shorten the window to 50 days and the same fall pulls the average down roughly four times faster, because each new close carries four times the weight in the mean.