Question 1

What is SMA?

Accepted Answer

The Simple Moving Average (SMA) is the most fundamental trend indicator in technical analysis. It calculates the arithmetic mean of the last N closing prices, creating a smooth line that filters out short-term noise and reveals the underlying trend direction.

Question 2

How it works

Accepted Answer

SMA assigns equal weight to every price in the lookback window: ``` SMA(N) = (Close_1 + Close_2 + ... + Close_N) / N ``` Each new candle adds the latest close and drops the oldest one, so the average "slides" forward in time.

Question 3

Key features

Accepted Answer

- **Equal weighting** — every bar in the window contributes the same amount. - **Lagging indicator** — SMA reacts slower than EMA or WMA because old prices carry the same weight as recent ones. - **Smoothness** — longer periods produce smoother curves, shorter periods track price more closely. - **Universal baseline** — many other indicators (Bollinger Bands, MACD, Envelopes) are built on top of SMA or its variants.

Question 4

Trend direction

Accepted Answer

- Price above SMA — bullish bias. - Price below SMA — bearish bias.

Question 5

Crossovers

Accepted Answer

- **Golden Cross:** short SMA (e.g. 50) crosses above long SMA (e.g. 200) — bullish signal. - **Death Cross:** short SMA crosses below long SMA — bearish signal.

Question 6

Dynamic support / resistance

Accepted Answer

- In an uptrend SMA often acts as support. - In a downtrend SMA often acts as resistance.

Question 7

Parameters

Accepted Answer

| Parameter | Default | Description | |-----------|---------|-------------| | Period | 20 | Number of candles to average | Common periods: 10 (short-term), 20 (swing), 50 (medium), 100, 200 (long-term).

Question 8

Example conditions

Accepted Answer

| Condition | Meaning | |-----------|---------| | `close > SMA(200)` | Price is above long-term trend | | `SMA(50) cross_over SMA(200)` | Golden Cross — bullish | | `SMA(50) cross_under SMA(200)` | Death Cross — bearish | | `close cross_over SMA(20)` | Price reclaims the 20-period mean |

Question 9

Tips

Accepted Answer

- SMA(200) is the most watched level on daily charts — institutional traders track it. - Use two SMAs of different periods for crossover strategies (e.g. 9/21, 50/200). - In choppy markets SMA crossovers produce many false signals — add a filter (RSI, ADX). - SMA works best in trending markets; avoid relying on it in tight ranges.