Free Trading School · Level 7: Technical Indicators
Moving averages: SMA and EMA
A moving average (MA) is the average closing price over the last N candles, recalculated every candle. The simple moving average (SMA) weights every candle equally. The exponential moving average (EMA) gives more weight to recent candles, so it reacts faster.
Price with a fast (20) and a slow (50) moving average. Price above both, fast above slow: an uptrend.
Four ways traders use them
- Trend filter: only buy when price is above the 50 or 200-period MA.
- Dynamic support and resistance: in strong trends, price often pulls back to the 20 or 50 EMA before continuing.
- Crossovers: a fast MA crossing above a slow MA signals that momentum has turned up.
- Distance: price far above its MA is stretched and often pauses.
| Common setting | Typical use |
|---|---|
| 20 EMA | Short-term trend, pullback entries |
| 50 SMA/EMA | Medium-term trend |
| 200 SMA | Long-term trend; watched by institutions |
Moving averages work in trends and fail in ranges. Check the market type before trusting a crossover.
Quick answers
A moving average (MA) is the average closing price over the last N candles, recalculated every candle. The simple moving average (SMA) weights every candle equally. The exponential moving average (EMA) gives more weight to recent candles, so it reacts faster.
Moving averages work in trends and fail in ranges. Check the market type before trusting a crossover.
EMA. The exponential MA weights recent candles more heavily.
Next lesson: RSI and momentum oscillators