What it is
A Simple Moving Average (SMA) takes the closing prices over the last N days and averages them. Each new day, the oldest close drops off and the latest gets added in. The result is a smoothed line laid on top of the price chart.
Why people watch it
Daily prices bounce around a lot. The moving average filters that noise to reveal the underlying direction.
Common window sizes
- SMA-20 — short-term, roughly a trading month
- SMA-50 — medium-term
- SMA-200 — long-term, often described as the "big-picture" line
What "above" or "below" means
A stock trading well above its 200-day SMA has been in a long-term uptrend; trading below means it's been weak relative to its longer history. People watch when the price crosses one of these lines, or when two SMAs cross each other (a 50-day crossing the 200-day is the famous "golden cross" / "death cross" pattern). The lines describe what did happen; they don't predict what will.