Moving Averages
Moving Averages
The moving average (MA), simple moving average (SMA), or exponential moving average (EMA) is an indicator used to identify the direction of a current price trend without the interference of shorter-term price spikes.
The MA indicator combines price points of a financial instrument over a specified time frame and divides it by a number of data points to present a single trend line.
The number of data points used depends on the length of the MA. For example, a 200-day MA requires 200 days of data.
By using the MA indicator, you can study levels of support and resistance and see previous price action (the history of the market). This means you can also determine possible future patterns or points at which price might react.
Difference Between SMA and EMA
Unlike SMAs, EMAs place a greater weight on recent data points, making data more responsive to new information. SMAs, on the other hand, give an equal weighing to every data point throughout the specified time period (i.e. 50 days, 200 days).