Exponential Moving Average vs. Simple Moving Average: What's the Difference? (2024)

FAQs

Exponential Moving Average vs. Simple Moving Average: What's the Difference? ›

Description. Exponential Moving Average (EMA) is similar to Simple Moving Average (SMA), measuring trend direction over a period of time. However, whereas SMA simply calculates an average of price data, EMA applies more weight to data that is more current.

Traders use many technical indicators to evaluate investment opportunities and trends. The simple moving average (SMA) is used to see price trends and assigns an equal weight to all values. The exponential moving average (EMA) gives a higher weighting to recent prices.

With moving averages in general, the longer the time period, the slower it is to react to price movement. But everything else being equal, an EMA will track price more closely than an SMA. Because of this, the EMA is typically considered more appropriate in short-term trading.

EMA provides higher weights to recent prices, while on the other hand, SMA gives equal weights to all values. Also, EMA is used for shorter time periods and fast-moving markets and SMA is used when a trader is holding a certain position for a long period of time.

An average is a static mean in time of an unchanged dataset. A moving average is a dynamic mean in a time series. It changes with the addition of new data.

20 / 21 period: The 21 moving average is my preferred choice when it comes to short-term swing trading.

Description. Exponential Moving Average (EMA) is similar to Simple Moving Average (SMA), measuring trend direction over a period of time. However, whereas SMA simply calculates an average of price data, EMA applies more weight to data that is more current.

The 200-day moving average is considered especially significant in stock trading. As long as the 50-day moving average of a stock price remains above the 200-day moving average, the stock is generally thought to be in a bullish trend. A crossover to the downside of the 200-day moving average is interpreted as bearish.

The 9-period and 15-period EMAs crossover strategy involves the crossover between these two moving averages. For example, when the 9 EMA crosses above the 15 EMA, this implies a bullish trend. Place a buy trade when you find a candlestick pattern that supports your bias, such as a bullish engulfing candlestick.

The 12- and 26-day exponential moving averages (EMAs) are often the most quoted and analyzed short-term averages. The 12- and 26-day are used to create indicators like the moving average convergence divergence (MACD) and the percentage price oscillator (PPO).

What is the disadvantage of simple moving average? ›

The SMA's weakness is that it is slower to respond to rapid price changes that often occur at market reversal points. The SMA is often favored by traders or analysts operating on longer time frames, such as daily or weekly charts.

A simple moving average (SMA) calculates the average of a selected range of prices, usually closing prices, by the number of periods in that range.

There is no perfect set of moving averages. The 5, 8, and 13-bar simple moving averages do offer relatively strong inputs for day traders seeking an edge in trading the market from both the long and short sides.

You may be familiar with indicators like the simple moving average (SMA) and the exponential moving average (EMA). However, did you know that there's a different type of price action smoothening indicator that belongs to the same family of moving averages? This is the displaced moving average (DMA).

SMA and EMA are calculated differently. The calculation makes the EMA quicker to react to price changes and the SMA reacts slower. That is the main difference between the two. One is not necessarily better than another.

DMA involves shifting the moving average line left or right on the chart, projecting past trends onto different points in time. EMA gives more weight to recent price data, resulting in greater responsiveness to current market conditions.

Because EMA has a higher alpha value than RMA, the EMA gives more weight to the last price. In fact, the weight EMA uses can be almost double of what RMA uses (see table above). As a result, the EMA responds faster to changes in price. Because its current value uses more recent data than the RMA does.