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Averages 5 closing prices, exposing the most immediate price direction with minimal smoothing.
SMA 5 is the simple moving average over the last 5 periods. It tracks very short-term price direction and is sensitive to recent changes.
The 5-day Simple Moving Average (SMA-5) calculates the arithmetic mean of closing prices over the most recent five trading days, creating a smoothed line that filters out daily noise to show very short-term trend direction. As the shortest commonly used moving average, SMA-5 responds quickly to price changes and is primarily used by active traders for short-term timing decisions.
The calculation:
SMA-5 = (Close Day 1 + Close Day 2 + Close Day 3 + Close Day 4 + Close Day 5) / 5
Example:
Day 1: $100 Day 2: $102 Day 3: $101 Day 4: $103 Day 5: $104 SMA-5: ($100 + $102 + $101 + $103 + $104) / 5 = $102
Why SMA-5 matters:
- Immediate trend: Shows the very short-term price direction
- Momentum indicator: Rapid response to price changes
- Trading trigger: Used for entry and exit timing
- Support/resistance: Can act as near-term support in uptrends
Interpreting SMA-5:
- Price above SMA-5: Short-term bullish; immediate trend is up
- Price below SMA-5: Short-term bearish; immediate trend is down
- SMA-5 slope: Rising = bullish momentum; falling = bearish momentum
Trading applications:
- Mean reversion: Overextended price relative to SMA-5 may snap back
- Trend following: Stay long while price stays above SMA-5
- Moving average crossovers: SMA-5 crossing longer MAs signals trend changes
Limitations:
- Whipsaw risk: Responds to every small move; generates many signals
- Noise sensitivity: Single-day moves significantly affect the average
- Not suitable for investors: Too short-term for position decisions
Best used in combination:
- SMA-5 vs. SMA-20: Short-term vs. intermediate trend
- With momentum indicators: RSI, MACD for confirmation
- With volume: Confirm signals with volume analysis
SMA-5 is most useful for active traders making short-term timing decisions. For investment purposes, longer moving averages like SMA-50 or SMA-200 provide more reliable trend signals with fewer false signals.