Charts and indicatorsUpdated 2 min readBy the FXNOD team
EMA vs SMA: which moving average should you use?
A simple moving average, SMA, gives every period in its window equal weight. An exponential moving average, EMA, gives more weight to recent prices, so it reacts faster to new moves. The EMA turns sooner and gives more false signals. The SMA is smoother and later. Neither is better: choose by whether lateness or noise costs you more.
How each is calculated
| SMA | EMA | |
|---|---|---|
| Formula | Sum of the last N closes divided by N | Previous EMA plus a share of the gap between today's close and it |
| Weight on the newest price | 1 divided by N | 2 divided by (N plus 1) |
| For N of 10 | 10% | About 18% |
| Old prices | Drop out completely after N periods | Fade but never fully leave |
How they behave
- After a sharp move, the EMA follows the price more closely than the SMA of the same length.
- The SMA can jump when a large old price leaves the window, even if nothing happened today.
- In a choppy market the EMA crosses the price more often.
- Over long windows, such as 200 periods, the two are close and the difference rarely matters.
Common choices
| Use | Typical choice |
|---|---|
| Short-term direction | 9 or 21 EMA |
| Medium-term trend | 50 SMA or EMA |
| Long-term trend | 200 SMA |
| Inside MACD | 12 and 26 EMA |
How to choose
If your method needs early entries and you can tolerate being wrong more often, use an EMA. If you want fewer, more deliberate signals, use an SMA. Then stop comparing. The gain from switching type is small next to the gain from sizing trades properly and trading only when a trend exists.
What neither can do
Both are averages of past prices. They show the trend that has been, with a delay. In a sideways market both produce a string of losing crossovers, and on a random synthetic index neither carries information about the next move.
In FXNOD
Trade Pilot's chart can draw moving averages, and Bot Forge offers both a simple and an exponential moving average as indicators.
Questions people ask
- Is EMA more accurate than SMA?
- It is more responsive, not more accurate. It reacts sooner and is wrong more often.
- Which is better for day trading, EMA or SMA?
- Many day traders prefer EMAs for their speed. The choice matters less than trading with the larger trend.
- What is the difference between MA and SMA?
- MA is the general term. SMA and EMA are two ways of calculating it.
Put it on a chart
Trade Pilot's chart has moving averages, RSI and Bollinger Bands, and a bot in Bot Forge can use indicators to choose its side. Try both on your Deriv demo account.
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