Indicators
Moving averages (SMA and EMA)
4 min
A moving average (MA) smooths price into a single flowing line by averaging the last N closes. It is the most widely used indicator and the foundation of trend analysis.
SMA vs EMA
- Simple Moving Average (SMA) weights every price in the window equally. Smooth and stable, but slow to react.
- Exponential Moving Average (EMA) weights recent prices more heavily, so it turns faster — at the cost of more whipsaws.
A short MA (e.g. 20-period) hugs price; a long MA (e.g. 200-period) describes the major trend.
How to read them
- Slope — a rising MA signals an uptrend, falling a downtrend.
- Price vs MA — price above the MA is bullish context, below is bearish.
- Crossovers — a short MA crossing above a long MA is a bullish "golden cross"; crossing below is a bearish "death cross".
The big limitation
Moving averages are lagging — they are built from past prices, so they always confirm a move after it has begun, never before. In a sideways, choppy market they generate constant false crossovers. They work best as a trend filter in trending conditions, and poorly as a timing tool in ranges.
This content is for educational and informational purposes only and is not investment, financial, tax or legal advice. Trading and investing carry risk, including the possible loss of capital. Any performance shown by third-party tools is hypothetical and not a promise of future results. Do your own research and consider professional advice before making any decision.