Key Points
- A simple moving average (SMA) is the average closing price over a set number of periods, plotted as a line on a chart.
- Moving averages in technical analysis help smooth price noise so you can see trend direction more clearly.
- To use moving average SMA well, treat it as a trend filter and a dynamic support or resistance guide, not as a perfect signal.
- SMA behaves differently by timeframe… a 200-day SMA can represent long-term trend, while a 20-day SMA reacts faster.
- Moving average crossover strategy ideas can work as a framework, but crossovers often lag and should be combined with context.
- Best moving average settings in crypto depend on your timeframe and goal… consistency matters more than chasing a perfect number.
- If any terms feel unfamiliar, use the Crypto Glossary for quick definitions, then return to this lesson.
Quick Answer
A simple moving average (SMA) is the average price over a chosen period, such as 20, 50, or 200 days. It smooths price so you can see trend direction and potential dynamic support or resistance. In crypto, many traders use the SMA as a trend filter, for example, price above a rising SMA suggests bullish conditions, while price below a falling SMA suggests bearish conditions.
Where This Lesson Fits
Lesson 8 explained how to identify market trends as uptrend, downtrend, or sideways by tracking swing highs and lows. Lesson 9 adds a classic trend tool, moving averages, starting with the simple moving average (SMA), so you can smooth noise and judge direction with more consistency.
This lesson is part of the Technical Analysis for Beginners series. For the full lesson map and all supporting guides, visit the Technical Analysis for Beginners Hub.
What Is A Simple Moving Average (SMA)?
A simple moving average is calculated by taking the average of the last N closing prices.
Simple moving average (SMA) definition:
- Pick a period, such as 20 days
- Add the last 20 closes
- Divide by 20
- Plot the result as a line
Each new candle updates the average, so the line “moves” forward with price.
Why Moving Averages Matter In Technical Analysis
Moving averages help you reduce noise and see the underlying direction.
Moving averages can help you:
- identify trend direction
- judge whether momentum is improving or fading
- spot whether pullbacks are shallow or deep
- find dynamic areas where price often reacts
They do not predict the future. They describe what price has been doing recently.
How To Use Moving Average SMA In Crypto
There are three common uses that work for beginners.
1) SMA As A Trend Filter
This is the simplest, most useful application.
A practical trend read is:
- price above a rising SMA suggests bullish conditions
- price below a falling SMA suggests bearish conditions
- price chopping through a flat SMA often suggests a range
This helps you label the market without relying on feelings.
2) SMA As Dynamic Support And Resistance
Moving averages can act like a “moving level”.
This happens because:
- many traders watch the same averages
- pullbacks often pause near the average
- reactions can repeat over time
Do not treat the SMA as a perfect line. Treat it as an area where reactions can occur.
3) SMA As A Mean Reversion Reference
When price stretches far above or below the SMA, it can signal extension.
This does not mean “reversal now”.
It means price is extended relative to its recent average, which can increase the odds of a pause, pullback, or consolidation.
SMA Indicator Crypto, Common Periods Explained
Different SMA periods answer different questions.
20-period SMA: short-term trend and pullback behaviour
50-period SMA: medium-term trend guide
100-period SMA: a slower medium-term reference
200-period SMA: long-term trend filter often watched across markets
The period is less important than using it consistently and understanding what it represents.
Best Moving Average Settings Crypto, What To Use As A Beginner
Many beginners waste time hunting the “perfect” moving average settings.
A better approach is:
- choose one fast average and one slow average
- match them to your timeframe
- stick with them long enough to learn how they behave
A simple set-up that is easy to learn:
- 20 SMA for short-term behaviour
- 200 SMA for long-term trend context
This is not a rule. It is a stable learning template.
Moving Average Crossover Strategy Crypto, What It Really Tells You
A crossover is when a faster moving average crosses above or below a slower moving average.
A common crossover example is:
- 50 SMA crossing above 200 SMA is often called bullish
- 50 SMA crossing below 200 SMA is often called bearish
The limitation: crossovers lag. They happen after the move has already developed.
That does not make them useless. It means you should treat them as confirmation, not an early warning system.
Common SMA Mistakes Beginners Make
- assuming the SMA is a precise support or resistance line
- changing periods constantly until it “fits” the last move
- ignoring timeframe context
- treating crossovers as instant buy or sell signals
- forgetting that sideways markets will chop moving averages to pieces
A simple rule is: when the market is ranging, moving averages give more false signals.
Mini FAQs
What is a simple moving average (SMA)?
A simple moving average is the average closing price over a chosen number of periods, plotted as a line to smooth price and show trend direction.
How do moving averages work in technical analysis?
They smooth out short-term price noise so you can see the underlying direction and potential dynamic reaction areas more clearly.
How to use moving average SMA in crypto?
Use SMA as a trend filter, a dynamic support or resistance guide, and a reference for extension away from the average.
What is the SMA indicator in crypto?
It is the SMA line plotted on a crypto chart, often using periods like 20, 50, 100, or 200 to represent different trend horizons.
What is a moving average crossover strategy in crypto?
It uses a fast moving average crossing a slow moving average as a trend confirmation signal, but it can lag and should be used with context.
What are the best moving average settings in crypto?
There is no universal best setting. A practical beginner approach is to use one fast average and one slow average consistently, matched to your timeframe.
Next Lesson
In this lesson you learned what a simple moving average (SMA) is, how moving averages work in technical analysis, and how to use moving average SMA in crypto as a trend filter and reaction guide.
Next, Lesson 10 builds on this by covering the Exponential Moving Average (EMA), which reacts faster than the SMA and is widely used in crypto trend analysis.
For the full lesson map and all supporting guides, visit the Technical Analysis for Beginners Hub.
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Legal And Risk Notice
This content is for education and information only and should not be considered financial, legal, or tax advice. Crypto assets are volatile and high risk. You are responsible for your own research and decisions, and you should consider seeking independent professional advice where appropriate.
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