The Simple Moving Average (SMA) is the most basic and widely understood technical indicator. It calculates the average closing price over a set number of periods, giving equal weight to every candle.
SMA Formula
SMA(n) = (P1 + P2 + P3 + ... + Pn) รท n
Where P = Closing price, n = Number of periods
Most Used SMA Periods on NSE
| Period | Common Name | Used For |
|---|---|---|
| 20-day SMA | Monthly average | Short-term trend, Bollinger Band midline |
| 50-day SMA | 10-week average | Medium-term support/resistance |
| 100-day SMA | โ | Intermediate trend filter |
| 200-day SMA | Annual average | Long-term bull/bear distinction |
The 200-Day SMA Rule
One of the most watched indicators by institutional investors in India:
- Price above 200-day SMA โ stock is in a long-term uptrend (bullish)
- Price below 200-day SMA โ stock is in a long-term downtrend (bearish)
NIFTY 50 trading above its 200-day SMA historically has a much higher probability of continued upside. Many FIIs and DIIs use the 200-day SMA as a key portfolio allocation signal.
Golden Cross and Death Cross
Golden Cross: 50-day SMA crosses above 200-day SMA โ Strong bullish signal, often marks the start of a major uptrend.
Death Cross: 50-day SMA crosses below 200-day SMA โ Strong bearish signal, often marks the start of a major downtrend.
SMA vs EMA โ When to Use Which
- Use SMA for long-term trend identification (50-day, 200-day) and support/resistance zones
- Use EMA for shorter-term trading signals where speed matters (9, 21, 50 period)
The SMA 200 on the daily chart is one of the most reliable support levels on NIFTY 50 during corrections. Multiple bounces from this level in 2020, 2022, and 2023 made it a reliable buy zone.
Limitations
- High lag โ the 200-day SMA is 200 candles behind current price
- Works poorly in sideways markets โ gives many false signals
- All historical data is weighted equally โ older data has the same impact as recent price
