In short
- A moving average smooths price to show trend direction.
- EMA reacts faster than SMA.
- Works well in trends, poorly in ranges.
SMA vs EMA
| Simple (SMA) | Exponential (EMA) | |
|---|---|---|
| Calculation | Equal weight to each period | More weight to recent prices |
| Speed | Slower, smoother | Faster, more responsive |
| Best for | Longer-term trend | Shorter-term signals |
Popular periods
- 20 — short-term trend
- 50 — medium-term trend
- 200 — long-term trend, widely watched on the daily chart
Three common uses
1. Trend filter
Only look for buys when price is above a rising 50 or 200-period average, and sells when it's below a falling one.
2. Dynamic support and resistance
In trends, price often pulls back to a moving average before continuing.
3. Crossovers
A faster average crossing above a slower one can signal a new uptrend. Crossovers lag and generate false signals in sideways markets.
Limitations
Moving averages are built from past prices, so they always lag. In choppy markets they whipsaw. Use them as one input, together with levels, risk-reward and a stop-loss.
Frequently asked questions
Which moving average is best?
There's no single best. The 20, 50 and 200-period averages are widely watched. EMAs react faster; SMAs are smoother.
Do moving average crossovers work?
They identify trends after they start, so they lag and give false signals in sideways markets. Combine them with other analysis and risk rules.
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