Simple Moving Average Vs. Exponential Moving Average

Simple Moving Average Vs. Exponential Moving Average

The simple moving average (SMA) is the average price of an asset over a specific period of time. The most popular intervals for reference are the 21, 50, 100, and 200 period moving averages. The 128 period MA has been quite useful as well.

The exponential moving average, on the hand, is like the weighted average, where the most recent price is given more weight-age.

exponential ma
Calculation of Exponential Moving Average (Source)

In simple moving average, the most recent price with be given equal weight-age, lets say (1/50, 2%) for 50-period SMA. However, in case of EMA, the weight-age given to the most recent price would be 1.96%.

As we go to lower periods like 21-DAY EMA, the difference is larger. Hence, with longer periods, the EMA and SMA usually converge with each other during ranging markets.

Nevertheless, during times of volatility and trends, the EMA will lead or lag the SMA on large time-frames as well. Whereas, they will be quite close during ranging markets, because EMA updates on the value of itself.

Also, values of EMA and SMA are not affected by the orientation of the graph (linear or logarithmic).

Last but not least, the preference of either of the above views and patterns depend on the trading styles and indicators used by particular traders.

Nivesh

Hello, I am an Electrical Engineer currently pursuing Actuarial studies. I work as an analyst reporter for CoinGape. Here to share my knowledge and observation of the crypto space. Feel free to contact!

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