Recently, a friend asked me how to quickly get started with technical analysis, so I recommended he start with simple moving averages. To be honest, although this indicator looks simple, using it well can really save you a lot of trouble.

Simple Moving Average (SMA) is basically adding up the closing prices over a certain period and then dividing by the number of days. For example, if you want to see the 20-day SMA line, you sum the closing prices of the past 20 days and divide by 20. It sounds a bit complicated, but the core logic is just that. I initially understood it this way too, and later realized its biggest function is to filter out the noise from price fluctuations, making the trend clearer.

You’ll find that when the SMA line is trending upward, the market is usually in an uptrend; when it’s trending downward, it’s a downtrend. This may sound obvious, but in actual trading, many people are fooled by short-term volatility and ignore what this line is telling them.

Regarding how to use it specifically, I most often use two methods. The first is observing the relationship between the price and the moving average—when the candlestick breaks above the SMA line, it’s usually a buy signal; breaking below is a sell signal. But I have to be honest, in choppy markets, this trick can fool you many times, with lots of false signals.

The second method is using crossover strategies, which I use more frequently. For example, watching the 20-day and 50-day SMA lines simultaneously—when the short-term line crosses above the long-term line, we call this a “Golden Cross,” which is usually a bullish signal. Conversely, crossing below is called a “Death Cross,” indicating a possible decline. This strategy is more reliable than just looking at a single line.

As for setting it up, most charting software is similar. Just find the moving average in the technical indicators, then set the period you want. I usually set up the 10-day, 20-day, 50-day, and 200-day SMAs, using different colors to distinguish them, so you can quickly see short-, medium-, and long-term trends at a glance.

However, I want to especially remind you—no single indicator is perfect. SMA lines do have lag, as they only reflect past price movements and cannot predict the future. So it’s best to combine it with other indicators like RSI and MACD, which can filter out more false signals and improve your trading success rate. Technical analysis works best when multiple tools are used together.