Beginners Guide To SMA (Simple Moving Average) For Technical Analysis
The SMA and other moving averages are easy to calculate and, once plotted on a chart, is a powerful visual trend-spotting tool. Many traders watch for short-term averages to cross above longer-term averages to signal the beginning of an uptrend.They are really helpful for smoothing the data and it is easier to spot trends,which is helpful in volatile markets.
The technical term of calculation is taken from Wikipedia for general understanding :
A simple moving average (SMA) is the unweighted mean of the previous n data points.For example, a 10-day simple moving average of closing price is the mean of the previous 10 days’ closing prices. If those prices are 
then the formula is
When calculating successive values, a new value comes into the sum and an old value drops out, meaning a full summation each time is unnecessary,
For example: a 5-day simple moving average is calculated by adding the closing prices for the last 5 days and dividing the total by 5.
10+ 20 + 30 + 40 + 50 = 150
(150 / 5) = 30
Investors use the time frame according to their needs for example 5 day Sma will be for shorter period and 10,20 and so on for longer time frame.But you should keep in mind that the higher the number period you use, the slower it is to react to the price movement.
How To Do It In Excel
well if you are now going to use it for technical analysis you have to plot it.You can use the excel for building it or you can directly use the software such as google finance or msn central for plotting it.
Lets do it for example we take on google
Now put Google in google finance and get quotes.
Now it will show purely the volume and trend for technical ones.Go to technicals tab and select Simple moving average You have to put the time period also. For example for 5 day ,10 day or more according to your need.
Now you have to choose the settings option and choose the charting option type.
Comparing SMA for different time period on same chart
Simply use add technical option and each time select the SMA and enter the days limit for it for example we are using here 15,30 and 60 days.
Now how to detect to sell or to buy :
The longer the moving average period is , the better established the trend it shows and the less likely it is to be generating a false signal. On the other hand, longer moving averages give up more of the profit potential of a trade because they are slower in generating their signals.
A buy signal is generated when the short-term average crosses above the long-term average, while a sell signal is triggered by a short-term average crossing below a long-term average.In this example we are taking the google company and a time period of 25 feb to march 04 2010 no we have plotted the 15,30 and 60 days SMA on it.Now we can clearly see that 15 day average is crossing the 30 day and the 30 day is also crossing the 60 day avg so it can be considered as buy signal.Increasing the number of moving averages, as seen in the triple crossover method, is one of the best ways to gauge the strength of a trend and the likelihood that the trend will continue.Vice versa plays for sell signal.