A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.

Watch: Simple Vs. Exponential Moving Averages

|||In other words, this is the average stock price over a certain period of time. Keep in mind that equal weighting is given to each daily price. As shown in the chart above, many traders watch for short-term averages to cross above longer-term averages to signal the beginning of an uptrend. As shown by the blue arrows, short-term averages (e.g. 15-period SMA) act as levels of support when the price experiences a pullback. Support levels become stronger and more significant as the number of time periods used in the calculations increases.Generally, when you hear the term "moving average", it is in reference to a simple moving average. This can be important, especially when comparing to an exponential moving average (EMA).