Recently, some friends asked me how to use technical indicators to find trading opportunities. I remembered that many beginners are still not very familiar with the Simple Moving Average (SMA) tool. Honestly, this is the indicator I most recommend beginners learn first because its logic is the most straightforward.

The Simple Moving Average (SMA) is calculated by adding up the closing prices of an asset over a certain period and then dividing by the number of days. For example, a 15-day SMA is the sum of the closing prices of the last 15 days divided by 15. It sounds simple, but this method has a benefit—it helps you see the true trend direction of the asset’s price and filters out short-term noise.

For example, suppose the closing prices of a stock over the past 15 days are 30, 35, 38, 29, 31, 28, 33, 35, 34, 32, 33, 29, 31, 36, 34. To calculate the 10-day moving average, you add the prices of the last 10 days and divide by 10, resulting in 32.6. Then, for the next data point, you remove the first day’s 30, add the 11th day’s 33, and recalculate. Connecting these points forms a line, allowing you to see whether the price is rising, falling, or consolidating.

When the SMA slopes upward, it indicates an uptrend; when it slopes downward, it indicates a downtrend. The 200-day SMA is usually used to determine long-term trends, the 50-day for medium-term, and the 10 to 20-day for short-term. These are common timeframes used in the market.

But I have to be honest—the SMA has a fatal weakness—it only looks at past prices and cannot predict the future. By the time a signal appears, the market has often already moved, so it’s a lagging indicator. In choppy markets, prices often cross the moving average repeatedly, generating many false buy and sell signals, which can easily confuse traders.

When trading, I usually use two methods. The first is observing the crossover points between candlesticks and the moving average. When the price breaks above the SMA, it often rises afterward, which is seen as a buy signal; conversely, breaking below is a sell signal. The second method is using two SMAs of different periods crossing each other. For example, a 20-day SMA crossing above a 50-day SMA is called a “Golden Cross,” which is a bullish signal; crossing below is called a “Death Cross,” indicating a possible downtrend.

Setting up these indicators is also very simple. In your trading software, find the technical indicators section, select Moving Average, and set the number of days you want. I usually set up 20-day, 50-day, and 200-day SMAs, using different colors to distinguish them, so you can quickly see the trends across different timeframes.

Finally, I want to remind you that no indicator is perfect. Combining SMA with other indicators like RSI or MACD can better filter out false signals and improve your trading success rate. Don’t rely solely on any single tool—using multiple indicators together is the right approach.