Calculation and mechanics
The SMA is recalculated every day: the closing prices of the last n periods are added up and divided by n. When a new day comes in, the oldest one drops out of the window. A large move therefore affects the line twice, once when it enters and again when it drops out n days later.
The SMA50 covers about two and a half months of trading, the SMA200 just under a calendar year. Because of the long windows both react slowly and describe the longer-term course rather than the last few days. On a weekly basis an SMA40 roughly corresponds to the daily SMA200, a 50-week SMA to about 250 trading days.
The position of the price relative to the SMA is expressed as a percentage distance, as with the EMA21: (price / SMA - 1) x 100.
SMA(n) = (close today + close yesterday + ... + close n-1 days ago) / n
Distinction
The EMA21 weights recent prices more heavily and therefore reacts faster. An SMA of the same length follows the price with a larger lag but is less sensitive to single days.
The Distance to the 52-Week High measures the distance to an extreme, the SMA200 the distance to the average over a similar period. Both describe the position within the year from different angles.
Related terms
- EMA21 (Exponential moving average over 21 periods)
- Distance to the 52-Week High (52WH %, distance to the yearly high)
- Return Relative to a Benchmark (Relative performance, vs SPY, vs ACWI)
All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.