Simple Moving Average   

     

A simple moving average is formed by computing the average price of a instrument over a specified number of periods. Adding the closing prices for the last 5 intervals and dividing the total by 5 calculate a 5-interval simple moving average. It’s the average stock price over a period of time. Keep in mind that equal weighting is given to each period’s price. 

Usage:
It makes easier to spot trends, especially helpful in volatile markets. It smoothes a data series and make it easier to spot trends, something that is especially helpful in volatile markets. They also form the building blocks for many other technical indicators and overlays. The fact that all moving averages are lagging indicators and will always be “behind” the price. Because moving averages are lagging indicators, they fit in the category of trend following indicators. When prices are trending, moving averages work well. However, when prices are not trending, moving averages can give misleading signals