![]() Ultimately, choosing the correct moving average depends on how you wish to interpret price data within the context of your trading strategies. ![]() On the other hand, swing traders often reference 50-day SMAs based on median values to craft trading decisions. If you’re trading on compressed timeframes, then using an intraday EMA based on closing prices makes sense. Generally speaking, forex traders believe that the exponential moving average edges the simple moving average, but choosing one over the other really depends on what it will be used for. Conversely, the SMA is more of a lagging indicator. This is a key distinction, as the EMA is viewed as being the more current calculation. However, the key difference between a simple moving average and an exponential moving average is the sensitivity each one shows to the data used by its calculations: the EMA places a heavy focus on recent prices, whereas the SMA assigns an equal weighting to all values. Both are representations of average pricing and both are used by technically-focused traders to interpret market behavior. ![]() Not to mention how to profit from beneficial moves in price action! The Simple and Exponential Moving AveragesĪs you already know, both the simple moving average (SMA) and exponential moving average (EMA) are generally interpreted in the same way. Through looking at the “how’s” and “why’s,” of each tool, we can gain a better understanding of moving average functionalities and applications. Let’s start off by comparing these two technical indicators. Which one is better? Which one should I use? Well, the answers to these questions are exactly what this lesson is all about. Raindrop Chart courtesy of that you know both simple and exponential moving averages, you probably have a lot of questions on your mind. If you are interested in seeing the backtesting data on moving average signals for both EMAs and SMAs you can check out my book here: 50 Moving Average Signals that Beat Buy and Hold. If you are trading crossover signals then the exponential moving average will probably give you more of an edge by getting you in and out faster than a simple moving average when you look at the backtests for most markets. What is the best moving average? If you are using long term moving averages like the 50, 100, or 200 day the simple moving average will likely give the most accurate level. I have found better backtesting results on EMA crossover signals overall than SMA cross over signals in my hundreds of hours of backtesting moving average systems on the stock market. An EMA can work better in faster markets that move more in shorter time frames as it is more adaptive to present price data and will get you in and out quicker than an SMA. The EMA calculations decreases the weighting of older price data and increases the weighting of newer price data based on how many days old the prices are. ![]() The EMA starts with the SMA data but adds a multiplier to the more recent price data points than the past ones. The exponential moving average is a faster moving average and gives more weight to recent prices than past prices and changes more quickly to adapt to the current market trend. Also the majority of traders tend to use the simple moving average for longer term moving averages like the 50 day and the 200 day simple moving average so you can see more responses of buyers and sellers around those key lines because they are more popular than the EMAs on those time frames. It tends to work better on slower markets like market indexes and big cap stocks as they tend to move less in percentage terms and more time can be taken to get in and out in most situations. The simple moving average is a slower signal to get you in and get you back out of a trade. On a 10 day simple moving average one day is weighted as one tenth of that moving average. It is slow to react to changes in price action as each data point is just one of the total sequence of data points. The simple moving average is just that, simply the moving average over the period of your chosen time frame. I get asked all the time the question: “What moving average is better the simple moving average or the exponential moving average?” The answer to this is that it depends on the market you are trading and what your backtests show on your specific markets.
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