SMA vs. EMA
If you looking for the better of the two, choosing one over the other is not the answer. Professional traders use the combined strength of SMA and EMA.
If you looking for the better of the two, choosing one over the other is not the answer. Professional traders use the combined strength of SMA and EMA.
SMA EMA
Pros Reduces the chance of false breakouts, hence potential losses Quick to respond to price swings and more a leading indicator than SMA
Cons Could be late on big movements because of the slow nature of SMA and lag in signals Increases risk of trading a flase breakout
There is a trade-off between sensitivity and reliability. While the WMA and EMA are more sensitive, SMA is more reliable. Since WMA/EMA responds quicker to short-term situations, they might also give false signals in response to short-term volatility. In long term situations where sensitivity is not an issue, SMA works better as it is more reliable. Some traders try to take advantage of strengths of both SMA and EMA. They might keep an eye on the overall trend by using a longer period simple moving average, and then determine a good time to enter a trade by using a shorter period exponential moving average. They might use a longer period simple moving average to find out what the overall trend is, and then use a shorter period exponential moving average to find a good time to enter a trade.
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