Simple Moving Average

A Simple Moving Average, often known as SMA, is a bit like a magic trick that smooths out all the random ups and downs in a set of numbers to give you the straight scoop on trends. In business intelligence and data analytics, it’s a calculation that takes the average of a selected range of prices, costs, or any other number over a specific period. Imagine tracking your weekly lemonade stand earnings over the summer; by adding up the last few weeks’ profits and dividing by the number of weeks, you get a simple moving average that shows you the general direction your business is heading.

Businesses use SMAs to spot whether things like sales or stock prices are trending up or down over time without getting fooled by random blips. It’s like having a better line on a graph that makes it easier to see long-term patterns. This can help in making decisions about when to buy resources, budget for the future, or even when to launch a new product.

The “simple” part is because it gives equal weight to all the numbers in the period. Every day (or week or month) counts the same as the last, making it a straightforward way to analyze past performance and get clues about the future. Companies that keep an eye on their Simple Moving Average can stay ahead of the curve, reacting to real, substantial shifts in their data rather than getting sidetracked by short-term fluctuations.