Smoothed Moving Average (SMMA)
Last updated
Last updated
The Smoothed Moving Average (SMMA) is a trend-following technical indicator that blends the characteristics of a Simple Moving Average (SMA) and an Exponential Moving Average (EMA). Like all moving averages, the SMMA is used to smooth out price data over a specified period to help traders identify the prevailing market trend.
However, what makes the SMMA unique is its sensitivity management. Unlike the EMA, which gives more weight to recent prices, and the SMA, which equally weighs all data points, the SMMA applies a smoothing factor that makes it less reactive to short-term fluctuations. This results in a slower, more stable line that emphasizes the long-term trend without being overly sensitive to recent volatility.
The SMMA is calculated using a two-step process:
Initial Value (First Period): The first value is simply the Simple Moving Average (SMA) of the dataset.
Subsequent Values: Each new SMMA value is calculated by incorporating the previous SMMA and the current price:
Where:
SMMA(i) is the current smoothed average
SMMA(i-1) is the previous smoothed average
Price(i) is the current price
N is the selected period
This recursive formula allows the SMMA to retain a "memory" of past prices, making it slower to react but more consistent in indicating the trend.
Reading the SMMA is similar to reading any other moving average:
Rising SMMA: Indicates an uptrend or bullish market sentiment.
Falling SMMA: Indicates a downtrend or bearish sentiment.
Flat SMMA: Suggests a ranging or consolidating market.
Because of its lagging nature, SMMA is not suitable for predicting quick reversals or scalping. Instead, it shines in identifying established trends.
The SMMA can be applied to any timeframe and is adjustable based on the trading strategy. Some commonly used periods include:
14-period SMMA: Often used for short-to-medium-term trend analysis.
50-period or 100-period SMMA: Better for long-term trend direction.
200-period SMMA: Commonly used for identifying major market trends and long-term support/resistance.
The choice of settings depends heavily on your trading style. For intraday strategies, a shorter SMMA may be more useful, while swing and position traders typically opt for longer periods.
Here are a few practical ways to incorporate SMMA into your trading strategy:
Use the SMMA to filter trade direction:
Only take long trades when the price is above a rising SMMA.
Only consider short trades when the price is below a falling SMMA.
The SMMA line can act as a dynamic level of support or resistance. Price often retraces to the SMMA before continuing in the direction of the trend.
Combine a fast and slow SMMA:
Bullish signal: When the faster SMMA (e.g., 14-period) crosses above the slower SMMA (e.g., 50-period).
Bearish signal: When the faster SMMA crosses below the slower one.
SMMA can be used alongside oscillators like RSI or MACD to confirm signals. For example, if RSI shows bullish divergence and price is above the SMMA, this strengthens the signal.
Using SMMA Alone Since SMMA is a lagging indicator, relying on it alone for entries and exits can lead to delayed decisions. Always combine it with other tools.
Over-optimizing the Period Trying to find the “perfect” SMMA setting can lead to curve-fitting. Instead, stick with standard values and focus on understanding the price context.
Ignoring Market Context In choppy, sideways markets, the SMMA may provide false signals or whip-saws. Be cautious during low volatility periods.
Mistaking Lag for Reliability While SMMA is smooth, the smoothing also introduces lag. It’s not meant to catch tops and bottoms, but to confirm the strength of a trend.
The Smoothed Moving Average is a powerful tool for traders who prefer a less noisy representation of price trends. It offers a balance between the quick responsiveness of the EMA and the raw simplicity of the SMA. Its strength lies in confirming existing trends rather than anticipating changes — making it a reliable tool for swing traders, trend-followers, and position traders.
To get the most out of SMMA:
Combine it with other indicators.
Use it to confirm the bigger picture.
Understand its limitations and lag.
Whether you’re trading crypto, forex, or stocks, the SMMA can be a valuable part of your trading toolkit — helping you stay on the right side of the market.
