Smoothed Moving Average
The Smoothed Moving Average (SMMA) is similar to the Simple Moving Average (SMA) in that it aims to reduce noise rather than reduce lag in asset price data.
The indicator takes all prices into account and uses a long lookback period. Old prices are never removed from the calculation, but they have only a minimal impact on the moving average due to a low assigned weight. By reducing noise, SMMA removes fluctuations and plots the prevailing trend.
SMMA can be used to confirm trends and define areas of support and resistance. It is often used in combination with other signals and analysis techniques.
Calculation
The initial value for the Smoothed Moving Average (SMMA) is determined by calculating a Simple Moving Average (SMA) using the following steps:
- Compute the sum of the closing prices over a specified period:
SUM1 = SUM(CLOSE, N) - Calculate the SMMA1 by dividing SUM1 by the smoothing period (N):
SMMA1 = SUM1 / N
Subsequent SMMA values are determined using the following formula:
SMMA(i) = (SUM1 - SMMA1 + CLOSE(i)) / N
In the provided context:
- SUM1 represents the cumulative sum of closing prices over N periods.
- SMMA1 represents the Smoothed Moving Average of the first data point.
- SMMA(i) represents the Smoothed Moving Average of the current data point (excluding the first one).
- CLOSE(i) is the closing price for the current data point.
- N stands for the smoothing period, which is a user-defined parameter.
