Daily SMA Study

By Samantha Baltodano

TL;DR:

The Daily SMA Indicator is a tool that helps traders make better investment decisions by analyzing financial markets. It calculates the Simple Moving Average on a daily basis, which helps traders understand daily price trends. 

The indicator uses an aggregation period, which is a time frame used to group and analyze data. Traders can adjust the length and displacement variables to fine-tune the indicator and better identify trends and trading opportunities. 

The Daily SMA is more sensitive to short-term trends than the Simple Moving Average, making it easier to identify daily trends and potential buy or sell signals.

What Is The Daily SMA Study?

As traders and investors, we are constantly seeking new and innovative tools to help us make better investment decisions. One such tool is the Daily SMA Indicator. 

Let’s explore what the Daily SMA Indicator is, how it differs from the Simple Moving Average (SMA), and how it can be used to help traders make more informed decisions.

Firstly, the Daily SMA Indicator is a technical analysis tool used to analyze financial markets. 

The SMA stands for Simple Moving Average, which is a mathematical calculation that helps to identify trends in the market. 

The Daily SMA Indicator, as the name suggests, calculates the SMA on a daily basis. This means that the calculation is based on a security’s price data for each trading day, giving traders a better understanding of the daily price trends.

Understanding the Components of Daily SMA

Aggregation Period

The Daily SMA study plots a simple moving average for price data on specified aggregation periods. An aggregation period is a time frame that is used to group together and analyze data. 

For the Daily SMA Indicator, it means that the tool looks at the price of things over a specific time period, like one day, and uses that information to see if the price is going up or down. The aggregation period is important because it helps traders understand the short-term trends in the market. The default value of the aggregation period is one day. 

Length and Displacer

Two additional variables that can be adjusted for this indicator are the length and the displacement. 

The length tells us how many bars are used to calculate the average, and the displacement tells us how many bars to move the average forward or backward. If the displace is a negative number, it means the average is moved forward. 

If you change the length or displacement values in the Daily SMA Indicator, it will change the way the indicator calculates the moving average.

Changing the length value will adjust the number of bars used to calculate the average. If you increase the length, the moving average will be based on more bars, which can help to smooth out short-term price fluctuations and provide a more accurate long-term trend.

Changing the displacement value will shift the moving average either forward or backward in time. This can be useful for traders who want to see how the moving average would have looked in the past or how it might look in the future, based on the current price trend.

The benefit of changing the length or displacement values is that it can help traders fine-tune the indicator to better suit their trading style and goals. By adjusting these values, traders can better identify trends and potential trading opportunities, which can lead to more successful trades and better returns on their investments.

Daily SMA vs. SMA

You may be wondering, how is the Daily SMA Indicator different from just the SMA? 

The difference lies in the time frame on which the calculation is based. While the SMA can be calculated on any time frame, the Daily SMA is calculated on a daily basis. This means that the Daily SMA is more sensitive to daily price movements, which can help traders identify short-term trends more easily.

Trade Signals

So how can traders use the Daily SMA Indicator to make better investment decisions? 

One way is to use it to identify potential trading opportunities. 

For example, if the Daily SMA is trending upward, it may be a good time to buy, while a downward trend may suggest it's time to sell. Traders can also use the Daily SMA to confirm trends that they have identified using other technical analysis tools.

Test The Daily SMA Study

Great news! 

You can back test this exact strategy on historical data for any of your favorite symbols using TradingView. 

This strategy has already been built and all you have to do is log in and take it for a spin. You can access this indicator here.

If you’re new to back testing and to TradingView, don’t worry. I created a step-by-step guide you can follow to begin testing the Daily SMA Study.

Summary

• Daily SMA is a technical analysis tool for traders and investors to make better investment decisions.
• It is a type of Simple Moving Average (SMA) that is calculated on a daily basis to give traders a better understanding of daily price trends.
• The Daily SMA Indicator calculates the average for a specific time frame called the aggregation period, which helps traders understand the short-term trends in the market.
• The length and displacer are additional variables that can be adjusted for this indicator to change the way it calculates the moving average and to help traders fine-tune the indicator to better suit their trading style and goals.
• Daily SMA is different from just SMA in that it is more sensitive to daily price movements, which can help traders identify short-term trends more easily.
• Traders can use Daily SMA to identify potential trading opportunities and confirm trends they have identified using other technical analysis tools.

Daily SMA Study is just one of many studies that Archaide automates. For a full list of strategies and studies available click here.

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