Indicators / Trend / Moving averages
Moving Averages Explained: SMA vs EMA, Settings and How to Use Them
Quick answer
A moving average smooths price into a single line so you can see the trend. The simple moving average (SMA) weights every candle equally; the exponential moving average (EMA) weights recent candles more, so it reacts faster. Neither predicts: they describe the trend that is already there.
Video: Moving Averages for Beginners. There is a second video further down: Detail Series: Moving Averages (Easy Listening).
What a moving average measures
A moving average is the average closing price over a set number of candles, recalculated on every new candle. It filters out noise so the direction of the market is easier to see.
Its slope is the trend; its position relative to price shows whether buyers or sellers have been in control over that window.
SMA vs EMA
EMA = close × k + previous EMA × (1 − k), where k = 2 ÷ (N + 1)
The EMA reacts faster to new moves and is preferred for shorter-term trading. The SMA is steadier and is widely used for big, slow levels such as the 200-day.
Common lengths
| Length | Use |
|---|---|
| 9 to 21 | Short-term trend and pullback entries |
| 20 and 100 together | Short-term direction against the bigger trend |
| 50 | Medium-term trend; common swing-trading line |
| 200 | Long-term trend; widely watched on the daily chart |
How to read moving averages
1. Slope before crossovers
A rising average means an uptrend over that window; a flat one means no trend. Signals from a flat average are mostly noise.
2. Price against the average
In a healthy uptrend, price stays above the average and pulls back to it. Repeated closes below a rising average are the first sign the trend is weakening.
3. Two averages together
Pairing a fast and slow line, such as the 20 and 100, shows short-term direction against the bigger trend. When the 20 is above a rising 100, pullbacks toward the 20 are in the trend's favour.
Common mistakes
- Trading every crossover. In sideways markets the lines cross constantly.
- Treating an average as a wall. It is a zone; price often overshoots it.
- Hunting for the perfect length. Standard lengths work because many traders watch them.
What to pair moving averages with
- RSI or MACD for momentum inside the trend.
- ADX to check that there is a trend worth following.
- Multiple timeframes to line up the short and long trend.
Watch next: Detail Series: Moving Averages (Easy Listening)
Another take on moving averages from the Indicator Guide channel.
Moving averages FAQ
Is EMA better than SMA?
Neither is better overall. The EMA reacts faster, which suits short-term trading; the SMA is smoother, which suits long-term levels.
Which moving average is best for stocks and crypto?
There is no single best. The 20 and 50 EMA for short-term trend and the 200-day SMA for the long-term trend are the most widely watched.
Do moving averages work in sideways markets?
Poorly. When the average is flat, price whips around it and crossovers fail. Use them when the line has a clear slope.