Lesson 2 of 7 · Indicators
SMA vs. EMA
Two formulas, different weights.
The simple moving average adds the last N closes and divides by N. Every bar gets equal weight. The exponential moving average gives more weight to recent closes, so it turns faster when price changes direction.
EMA turns first at the reversal.
After the low, the EMA 10 curves upward before the SMA 10 does. That faster response catches entries sooner, but it also triggers more false signals on noisy data.
Faster isn't always better.
An EMA produces more whipsaws in choppy markets. The SMA is slower, so it gives cleaner trend signals but enters later. Short-term traders tend to prefer the EMA. Position traders often use the SMA. Mixing both on one chart creates conflicting signals, which helps no one.
A stock spikes 8% in one session. Which average reflects that move faster in its value?
Show the answer
B. The exponential moving average. The EMA weights the most recent close more heavily. A large single-day move pulls it toward price faster than the SMA, which gives equal weight to all N periods.