Condition: SMA (Simple Moving Average)

Updated: June 2, 20265 min read

1. Overview

The Simple Moving Average (SMA) is a technical indicator that calculates the average of past prices over a defined time period.

In contrast to the Exponential Moving Average (EMA), all prices within the selected time period are weighted equally in the SMA. Each individual price thus flows into the calculation with the same influence.

For example, if an SMA 200 Day is used, it is calculated from the average of the closing prices of the last 200 trading days.

With the EMA, on the other hand, more recent prices are weighted more heavily than older prices, which causes the indicator to respond more quickly to current market movements.

SMAs are used to better classify trends and smooth out price movements. Depending on the strategy, short, medium, or long time periods can be used.

2. Typical SMA Time Periods

SMAs can be applied to different time periods. Frequently used values are, for example:

9, 12, or 20 time units for short-term analysis
50 time units for medium-term analysis
200 time units for long-term analysis

Particularly well-known is the 200-day SMA, which is frequently used to assess long-term trends.

The time unit can be, for example, minutes, hours, or days.

3. Interpreting the SMA

If the current price is above the SMA, this is often interpreted as a bullish signal. This suggests that the market is currently showing strength and rising prices are more likely.

If the current price is below the SMA, this is often interpreted as a bearish signal. This suggests that the market is currently showing weakness and falling prices are more likely.

Important: An SMA provides no guarantee of future price movements. The indicator merely provides a technical assessment of the current market trend and should always be considered together with additional analysis tools and market information.

4. Use in OptionsApp

In OptionsApp, the SMA can be used both as an Entry Condition and as an Exit Condition.

This allows trades to be opened, for example, only when the Underlying is above a certain SMA. Similarly, existing trades can be automatically closed if the price falls below or exceeds a defined SMA.

The SMA is particularly well-suited as a trend filter to trade only in the direction of a higher-level market trend.

5. Configuring the SMA

Configuration is done within Entry Conditions or Exit Conditions from left to right.

5.1 Select Underlying

First, select the desired Underlying, for example SPX.

5.2 Select Value

In the next step, select "Value". This specifies that the price value of the selected Underlying should be used for the evaluation.

5.3 Select Price Value and Time Unit

Next, select which price value should be used.

Typically, this is:

Close
Minute

used.

This uses the most recently completed minute value of the Underlying.

5.4 Select Operator

In the next step, select the desired comparison operator.

Possible operators include, for example:

greater than (>)
less than (<)
greater than or equal to (>=)
less than or equal to (<=)

5.5 Configure SMA

The SMA is then selected as the comparison value.

After that, the SMA parameters are defined:

Period, e.g. 9, 20, 50, or 200
Time unit, e.g. Minute, Hour, or Day

An example would be:

SPX Value Close Minute > SMA 200 Day

In this case, it is checked whether the most recently completed minute value of SPX is greater than the 200-day SMA.

6. Practical Examples

6.1 Trading Only Above the 200-Day SMA

A trade should only be opened if the market is in a long-term uptrend.

Configuration:

SPX Value Close Minute > SMA 200 Day

The trade is only opened if the current SPX value is above the 200-day SMA.

6.2 Trading Only Below the 200-Day SMA

A trade should only be opened if the market is in a long-term downtrend.

Configuration:

SPX Value Close Minute < SMA 200 Day

The trade is only opened if the current SPX value is below the 200-day SMA.

6.3 Exit on Trend Change

The SMA can also be used as an Exit Condition.

For example, a trade can be automatically closed as soon as the current price falls below a defined SMA.

This allows the SMA to be used as an additional safety mechanism if the market moves against the original trading direction.

6.4 Comparing Two SMAs

In addition to comparing the current price with an SMA, two SMAs can also be compared with each other.

This allows you to identify trend changes or shifts in market dynamics. Often a short-term SMA is compared with a longer-term SMA.

For example, the following condition can be created:

SMA 15 < SMA 35

In this case, it is checked whether the SMA with period 15 is below the SMA with period 35.

Since the SMA 15 responds faster to price movements than the SMA 35, this constellation is often interpreted as an indication of a weaker or falling market.

Conversely, the following condition would be possible:

SMA 15 > SMA 35

Here the short-term SMA is above the longer-term SMA. This is often interpreted as an indication of a stronger or rising market.

Configuration is analogous to the normal SMA condition. Instead of a price value (Value -> Close), an SMA is selected on the left side and another SMA is defined as the comparison value on the right side.

Example:

SMA 15 Minute > SMA 35 Minute

This checks whether the short-term 15-minute SMA is above the longer-term 35-minute SMA.

Here too, it applies that an SMA crossover provides no guarantee of future price movements. The signals should always be considered in the context of additional market information and trading rules.

7. Differences Between SMA and EMA

Both the SMA and the EMA serve to make trends visible and smooth out short-term price fluctuations.

The key difference lies in the weighting of prices:

With the SMA, all prices within the selected time period are weighted equally.
With the EMA, more recent prices are weighted more heavily than older prices.

As a result, the EMA responds faster to current market movements, while the SMA is often perceived as somewhat calmer and more stable.

Which indicator is better suited depends on the respective trading style and use case.

8. Usage Notes

Short SMAs react quickly to price movements and provide earlier signals. However, this also results in more false signals during short-term market fluctuations.

Long SMAs respond much more slowly, but they filter out a large portion of short-term fluctuations and are particularly suitable for determining the overall trend.

In practice, the 200-day SMA is often used as a long-term trend filter. Many strategies open long-oriented positions only when the market is above this SMA.

The SMA can be combined with additional Entry Conditions or Exit Conditions, for example with RSI, EMA, ADX/DMI, VIX conditions, or other technical indicators. This allows you to implement more complex trading rules and filter logic.