Moving Averages: SMA Vs EMA

Moving averages smooth out price data into a single line, making the overall direction of a market easier to see through the noise of individual candles.

Two Common Types

A simple moving average (SMA) takes the average closing price over a set number of periods, weighting every period equally. An exponential moving average (EMA) also averages closing prices but gives more weight to recent price action, so it reacts faster to new information than an SMA of the same length.

• A shorter moving average (fewer periods) tracks price more closely and reacts faster, but produces more false signals in choppy conditions
• A longer moving average is smoother and slower, better suited to identifying broad trend direction
• Price trading above a rising moving average is commonly read as a bullish trend context; below a falling one, bearish