A simple moving average is the most basic type of moving average. It is calculated by taking a series of prices (or reporting periods), adding these together and then dividing the total by the number of data points. This formula determines the average of the prices and is calculated in a manner to adjust (or "move") in response to the most recent data used to calculate the average.
EXAMPLE: If the most recent 5 exchange rates are 1, 2, 3, 4 and 5, the average would be the sum of the rates (1+2+3+4+5) divided by the number of reporting periods. 15/5 = 3
Each time a new price becomes available, the average "moves" so that the average is always based only on the last same number of variables. In this case, if the next number in the sequence were 6, the oldest rate (1) would be dropped and the new average would (2+3+4+5+6)/5 which equals 4.
If your main objective is to reduce the noise of consistently fluctuating prices in order to determine an overall market direction, then a simple moving average of the last 20 or so rates may provide a helpful level of detail. This indicator may be slow to react to latest rates. Buy and sell signals may lag even further behind the market.