Introduction
Now that you understand how to read candlesticks, it's time to add your first technical indicator: the Moving Average.
Moving averages are one of the most popular and widely used tools in trading. They help you answer one of the most important questions:
"What is the overall trend?"
If candlesticks show you the details of price action, moving averages show you the big picture. They smooth out the noise and help you see whether the market is generally moving up, down, or sideways.
What Are Moving Averages?
A moving average (MA) is a line on your chart that shows the average price over a specific period of time.
Imagine you want to know the average temperature in Manila over the last 7 days. You add up the temperature for each day and divide by 7. That's your 7-day average.
A moving average does the same thing with price. It takes the closing prices over a certain number of candles, adds them up, divides by that number, and plots the result as a smooth line.
Why "Moving"?
Because the average moves forward in time. Every time a new candle closes, the oldest price is dropped, and the newest price is added. The line recalculates and updates continuously.
What Do Moving Averages Do?
- Smooth out price noise: Price jumps around constantly. MAs smooth out these short-term fluctuations
- Reveal the trend: When price is above the MA, it suggests uptrend. When below, it suggests downtrend
The Moving Average smooths out price noise and reveals the upward trend
Two Types: SMA vs EMA
There are two main types of moving averages: SMA and EMA. Both calculate an average, but they do it differently.
Gives equal weight to all prices in the calculation. Every price matters the same.
- Smooth and steady
- Slow to react to price changes
- Good for long-term trends
- Less noise, more lag
Gives more weight to recent prices and less to older prices.
- Faster reaction
- More responsive to trend changes
- Good for swing trading
- More sensitive to noise
Use SMA if: You want a smoother line and focus on long-term trends
Use EMA if: You want faster signals and trade shorter timeframes
The truth? Both are useful. Many traders use both together (e.g., SMA for 200-period, EMA for 20-period)
Common Period Settings: 20, 50, 200
Moving averages can be calculated over any number of periods. But traders worldwide use the same standard settings because when millions watch the same levels, they become self-fulfilling.
Shows short-term trend and momentum. Acts as dynamic support in uptrend or resistance in downtrend.
Use case: Day traders and swing traders watch this for pullback entries.
Shows medium-term direction. A widely watched level by professional traders. Confirms trend strength.
Use case: Price above 50 MA + 50 MA sloping up = healthy uptrend.
One of the MOST important levels in technical analysis. Defines bull vs bear market. Major support/resistance.
Use case: 200-day SMA is the "line in the sand" for institutions. Above = bullish context.
The 200 MA (especially on daily charts) is so widely watched that it often becomes a self-fulfilling prophecy. When price approaches it, traders pay attention—and that attention creates real support or resistance.
Moving Averages as Dynamic Support & Resistance
One of the most powerful uses: MAs act as dynamic support and resistance.
What does "dynamic" mean? Unlike a horizontal line (which is fixed), a moving average moves with price. It adjusts constantly.
In an Uptrend:
- Price tends to stay above the moving average
- When price pulls back, it often bounces off the MA
- The MA acts as dynamic support
BTC/USD is in a strong uptrend. Price is above the 50 EMA. Every time price dips down to touch the 50 EMA, buyers step in and push it back up. The 50 EMA is acting as support.
In a Downtrend:
- Price tends to stay below the moving average
- When price rallies temporarily, it often gets rejected at the MA
- The MA acts as dynamic resistance
MAs work as support/resistance because traders are watching them. When millions see price approaching a key MA, many place orders there—creating real buying or selling pressure.
Understanding Lag in Moving Averages
Here's an important limitation: Moving averages lag behind price.
What does "lag" mean?
Because MAs are calculated using past prices, they always react after the price has already moved. They follow the price—they don't predict it.
Don't wait for the MA to "confirm" a trend change. By the time it does, you've already missed part of the move.
What this means for you:
- Use MAs for context, not precise entry/exit signals
- Combine MAs with other tools (candlesticks, support/resistance)
- Faster MAs (20 EMA) have less lag than slower MAs (200 SMA)
How to Add Moving Averages in TradingView
Let's get hands-on. Time to add MAs to your charts!
Adding a Simple Moving Average (SMA):
Click "Indicators"
At the top of the chart, click the "Indicators" button (fx icon)
Search for SMA
Type "Simple Moving Average" or "SMA" in the search box
Add to Chart
Click on "Moving Average" to add it to your chart
Configure Settings
Click the gear icon → Set Length to 50 → Change color if needed → Click OK
Adding an Exponential Moving Average (EMA):
Click "Indicators" Again
Add a second indicator (Basic plan allows 2)
Search for EMA
Type "EMA" or "Exponential Moving Average"
Configure as 200 EMA
Set Length to 200 → Choose a different color → Click OK
Since the Basic plan only allows 2 indicators, save this as "Template A (Trend)". You can load it anytime to quickly analyze trends!
Golden Cross & Death Cross
When you use two moving averages together (like 50 MA and 200 MA), you can watch for special signals:
When the 50 MA crosses above the 200 MA, it's called a "Golden Cross."
Suggests the start of a long-term uptrend. Watched closely by institutions.
When the 50 MA crosses below the 200 MA, it's called a "Death Cross."
Suggests the start of a long-term downtrend. A warning sign for traders.
These signals are slow (because of lag) and are best used for long-term trend confirmation, not short-term trading entries.
Practice Task
- Open TradingView and go to BTC/USD daily chart
- Add a 50 SMA and a 200 EMA to the chart
- Ask yourself: Is price above or below each MA?
- Are the MAs sloping upward, downward, or flat?
- Can you spot moments where price bounced off an MA?
- Save this setup as "Template A (Trend)"
- Why do moving averages "lag" behind price?
- What's the difference between the 50 SMA and 200 EMA in what they show?
- Why do MAs work better in trending markets than choppy markets?