A Simple Moving Average (SMA) is one of the most common tools traders use to identify buy and sell signals in financial markets. It smooths out price data by calculating the average closing price over a specific period, such as 10, 50, or 200 days. This creates a line on the chart that helps highlight the overall market direction rather than short-term fluctuations.

Buy signals typically occur when the price moves above the SMA, suggesting that momentum is shifting upward. Traders may also watch for a short-term SMA, like the 50-day, crossing above a longer-term SMA, such as the 200-day. This crossover is widely known as a “golden cross” and often signals a potential uptrend.

Sell signals appear when the price falls below the SMA, showing weakness in momentum. Similarly, if a shorter-term SMA crosses under a longer-term SMA, it forms a “death cross,” which may indicate the start of a downtrend.

While SMAs help traders spot trend changes and entry or exit points, they are lagging indicators because they rely on past prices. This means signals can appear after a trend has already begun. To improve accuracy, traders often combine SMA signals with other indicators or chart patterns. Used correctly, the SMA can be a simple but effective guide for buy-sell decisions.