Smoothed Moving Average is one of the numerous technical indicators that stock traders use to make short-term profits. It can also be used to take in medium and long-term profits.
SMMA is almost similar to exponential moving average (EMA) and simple moving average (SMA), only that it deals with longer periods. It is also a versatile technique that places more value on current prices but gives equal weighting to recent and historic prices as well by simply taking into consideration all the available data.
Key features of SMMA:
- Is a perfect combination of SMA and EMA
- Deals with longer periods
- Calculation is not based on a fixed period but available data
- Traders recalculate averages to get new prices
- The technique simply “smooths out” short-term fluctuations
The main benefit of this indicator is that it filters out temporary fluctuations and therefore helps traders to visualize the prevailing price trends. For this reason, it is the best trading technique in most trending markets. (Check out the trading views community for great ideas.)
Tips on using Smoothed Moving Average Indicator
Calculating SMMA is often a complicated process, but the good thing is that most trading platforms offer the indicator by default.
Here’s how to make the most while using the SMMA indicator:
- Understand how it works: SMMA works best when a trend is underway. As soon as you discover that the price of an asset is drastically increasing, it’s safe to buy. If, however, you notice a downward trend, short that asset. You’ll know that the price is on an upward trend if the indicator remains below it.
Essentially, an SMMA indicator helps you to spot trends early enough and helps you decide whether or not to keep holding a position.
- Use it in reversals: An SMMA indicator helps you to identify reversals, making it easy for you to tell when an asset has terminated a trend and launched a new one. When two averages are moving at different lengths, there’s a chance that a short will happen when they make a crossover. Using an SMMA indicator is a sure way to monitor crossovers.
Final Thoughts
The Smoothed Moving Average Indicator is a great option for traders. First off, it makes it easy to smooth data. The only disadvantage of SMMA is it utilizes past data, which may obscure new trends.
All in all, you must take your time to learn how it can work for you.
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