Simple and Exponential Moving Average
What is an exponential moving average? What differs between simple and exponential moving averages? Want to know which is the best moving average to use? Then you are at the right place. But let us get started with what moving averages are? It will help you understand the concept clearly. So, are you ready? Let’s roll then.
See, trading with moving averages will not only give you a better feel for the trade, but it will also help you handle fear and greed in the trade whether you take a long or short position. To calculate the moving average, we need to multiply the closing prices of an investment instrument which includes stocks and futures, for the number of periods.
Since we are done with a brief about moving average, now let’s discuss what exponential moving average is. Here we go.
What is the exponential moving average?
A line based on the average of several time points is known as the exponential moving average. Unlike the basic moving average, the first few points are given more weight. The simple moving average, on the other hand, has the same weighting across the board.
The EMA crossover is a widely used strategy among traders. In most cases, a period of 5 or 13 EMA is chosen. The 5 EMA is the headline, and if it crosses above or below the 13 line, traders buy or sell. This method works well when the markets are in a strong trend.
Now if you have understood about EMA, should we discuss what differs amongst them? Then let’s get started.
SMA VS EMA
Trading and investment style and preferences will determine which moving average you employ. In comparison to its relative, the exponential moving average has a lag, but the exponential moving average may be more prone to faster breaks. To capture changes more quickly, some traders chose to employ exponential moving averages for shorter periods.
To spot long-term trend shifts, some investors prefer simple moving averages over long periods. Furthermore very much will be determined by the individual’s level of security.
Wait! We know you want this to end, but let us tell you the best moving average you can use. If you are a day trader you need to know.
What is the best moving average to use?
See, if you are a short-term day trader, there are usually three different moving averages to consider:
9 or 10 periods: Extremely popular and fast-paced
The 21 periods moving average: It is the most accurate and medium-term moving average. When it comes to riding trends, this is a plus.
50-period moving averages: It is a long-term moving average that is useful for determining long-term trends.
Now as we discussed moving average, exponential moving average, SMA VS EMA, and what is the best moving average to use. Read and understand it properly, as it will make you less prone to temporary price swings and also help you identify areas of support and resistance.
For more information, watch the above video now! https://youtu.be/zF8soB130IE
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We are one of Indian’s Leading Advisory Company, and we provide our clients with top qualified professionals and advisors for giving them the right guidance.
