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What are the main advantages and disadvantages of using a Simple Moving Average (SMA)?


Vendors and analysts constantly argue over which is more effective, a innocent moving average (SMA) or an exponential moving average (EMA). The truth is, each one has spunks and weaknesses.

The SMA is the most straightforward calculation, as the average price over a on time period. The main advantage of the SMA is that it offers a smoothed threshold, less prone to whipsawing up and down in response to slight, temporary cost out swings back and forth. Therefore, it provides a more stable straightforward with indicating support or resistance. The SMA’s weakness is that it is slower to respond to brisk price changes that often occur at market reversal questions. The SMA is often favored by traders or analysts operating on longer time box ins, such as daily or weekly charts.

The advantage of the EMA is that by being weighted to the uncountable recent price changes, it responds more quickly to price transmutes than the SMA does. This is particularly helpful to traders attempting to craft intraday swing highs and lows, since the EMA signals trend interchange more rapidly than the SMA does. The concurrent disadvantage of the greater susceptiveness of the EMA is that it is more vulnerable to false signals and getting whipsawed retaliation and forth. The EMA is commonly used by intraday traders who are trading on shorter on occasion frame charts, such as the 15-minute or hourly charts.

Since neither mean is inherently superior, the question of which one to use is typically settled by the user’s have dealing style or analytical frame of reference.

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