In this lesson
- compute a simple moving average candle by candle
- try what the period does and set 50- and 200-day averages on Binance
- find a golden cross on the chart and see why it is no guarantee
The simple moving average is the oldest and humblest indicator in the menu. It has no opinions and plays no favourites – every candle in the window gets exactly the same vote. Professor Wick likes it for that: it is the most democratic line on the chart.
How it is computed#
The moving average (SMA, on Binance simply MA) adds up the closing prices of the last N candles and divides by N. With every new candle the window moves: the oldest price drops out, the newest comes in. Click Next and watch a window of 7 candles:
SMA 7 (blue). Highlighted candles = the ones the current value is computed from.
Mar 7, 2024: add up the closes of the last 7 candles – 452,356.08 in total. Divide by 7 and SMA = 64,622.3.
Notice that every candle in the window weighs the same – a week-old one as much as yesterday's. When a big move drops out of the window, the average jumps even though nothing happened today. This is called the drop-off effect.
What the period does#
The period is the number of candles in the window. A short one keeps the line near the price, a long one smooths it. Move the period and watch how often the price crosses the average:
The price crossed the line 41×. The common default setting – try moving the slider both ways.
On Binance three averages are on when you open the chart: MA(7), MA(25) and MA(99). Long-term traders often use 50 and 200 days – partly because everyone else watches them.
Setting it on Binance#
In Original mode click the indicator icon above the chart, the Main Indicator tab, the MA row. Each of up to six lines has its own length, price source (usually Close), style and colour:
Golden cross and death cross#
When the 50-day average crosses the 200-day average from below, it is called a golden cross. The opposite crossing is a death cross. The 2022–2024 chart has three:
- SMA 50
- SMA 200
- Golden cross: Feb 7, 2023
- Death cross: Sep 12, 2023
- Golden cross: Oct 30, 2023
Between the first golden cross and the death cross the price rose only from 23,240 to 25,840 – and went both higher and lower in between. A crossing of two slow averages always comes after the move. Try to find one yourself:
Click the candle where the faster SMA 50 (blue) crossed the slower SMA 200 (yellow) from below.
No candle picked yet.
How to use averages in a trading plan is covered in the lesson Moving averages.
A golden cross is not an order to buy
A golden cross only says that the average price of the last 50 days is above the average of the last 200 days. It says nothing about tomorrow. In 2023 the first golden cross was followed within seven months by a death cross at a price only 11% higher.
Common myths#
- "The 200-day average is support the price will bounce off." Sometimes it does, sometimes it goes through it like a knife through butter.
- "Golden cross = the start of a bull market." It is a late confirmation, not a forecast – and in a sideways market they come one after another.
- "The more averages, the better." Three averages with similar periods show almost the same thing.
Summary
- SMA = the sum of the last N closes divided by N; every candle in the window weighs the same.
- A short period keeps the line near the price, a long one smooths and delays it.
- On Binance: Original → indicator icon → Main Indicator → MA (default 7, 25, 99).
- Golden and death crosses are late confirmations, not signals about the future.