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A moving average can make a price chart easier to read; the Relative Strength Index (RSI) can show how recent gains compare with recent losses. Used together, they offer two different views of price—not a guaranteed way to predict a reversal or make a profitable trade. Think of the moving average as a broad course through chart noise and RSI as a momentum gauge, not an autopilot.
What a simple moving average shows
A simple moving average (SMA) is the arithmetic mean of a fixed number of recent observations. On a price chart, it smooths some short-term fluctuation so the broader direction may be easier to see. A 50-period SMA, for example, averages the observations in its 50-period window; it does not mean 50 days unless the chart is set to daily bars.
The window is a choice, not a universal best setting. A shorter window responds more quickly to new prices but may also track more noise; a longer one smooths more and responds more slowly. Select it for the instrument, chart timeframe, and question you are examining. The 50-period average used in the Star Wars-themed example is illustrative, not a proven optimum. The original example describes the setup in more detail.
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RSI compares average gains with average losses over a lookback period, then expresses that comparison on a scale from 0 to 100. It is a momentum oscillator: it describes recent price movement, rather than measuring an asset’s value or establishing what price will do next. A 14-period lookback is a common convention and the default described in TradingView’s RSI reference and StockCharts’ RSI reference. The period is measured in chart bars, so 14 periods on an hourly chart is not the same span of time as 14 periods on a daily chart.
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How to read the 70/30 convention
In the conventional Wilder interpretation, RSI above 70 is described as overbought, while RSI below 30 is described as oversold. These are descriptive thresholds, not trade instructions or promises that price will reverse. In a strong directional move, RSI can remain near an extreme; treating the first threshold crossing as a reversal signal can therefore be misleading. The threshold labels need context from price action and the timeframe being studied.
How an SMA and RSI can be used together
The indicators answer different questions. An SMA offers a smoothed view of direction over its chosen window; RSI summarizes the balance of recent gains and losses over its lookback. A trader might use the average as a trend filter and RSI to inspect momentum, but that combination does not by itself demonstrate that a trading rule has an edge.
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- Choose the chart and settings. Record the instrument, bar interval, SMA window, and RSI lookback rather than relying on labels such as “50-day” when the chart is not daily.
- Use the average as context. Decide in advance what relationship to the SMA counts as an upward, downward, or unclear trend for the example you are evaluating.
- Read RSI as a separate measure. Note its value and direction, but do not treat a 70 or 30 crossing as proof of a turn.
- Write any entry and exit conditions precisely. The Star Wars-themed article offers one set of conditions as an example. Those conditions are not a validated recommendation, and changing the rules changes the strategy being tested.
Combining two indicators may help structure an observation, but it cannot remove uncertainty from price movements. The cited references and example do not establish that this SMA/RSI combination is profitable.
Wilder RSI and a rolling-average variant are not identical
Implementation matters. In Wilder’s common RSI calculation, the first average gain and average loss are initialized from the lookback period. Subsequent values are smoothed recursively. For a 14-period RSI, the updated average gain is (prior average gain × 13 + current gain) / 14; average loss is updated in the equivalent way. RSI is then calculated from the ratio of those averages. StockCharts explains this smoothing and notes that history length can affect displayed values.
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The sample function in the themed article instead takes a rolling arithmetic mean for each 14-period window, while describing the result as following Wilder’s classic formula. Those are different implementations: use Wilder’s recursive smoothing if claiming to calculate Wilder RSI, or label the rolling calculation as a simple rolling-average RSI variant. Platforms can also show small differences when initialization and available history differ, so matching the lookback number alone may not reproduce another chart’s values.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What to specify before claiming a result
A chart example is not evidence of strategy performance. To make a test interpretable and reproducible, document the choices that affect its signals and outcomes:
- Instrument and data source, including any adjustment conventions that matter.
- Chart timeframe and the exact SMA and RSI formulas and lookbacks.
- RSI initialization, warm-up history, and smoothing method.
- Unambiguous entry, exit, and position-sizing rules.
- Transaction costs and other assumptions that affect execution.
- Test dates, plus whether results were evaluated on data not used to develop the rules.
Without those details, a reported outcome cannot establish how the setup would behave in another period or market. RSI was introduced by J. Welles Wilder Jr. in the 1978 publication New Concepts in Technical Trading Systems, as noted by StockCharts.
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