Technical Analysis

Moving Averages: SMA, EMA, and How to Use Them

Moving averages smooth price noise and reveal trend direction and dynamic support/resistance levels.

Key rules

  1. EMA reacts faster than SMA to recent price changes
  2. Price above key MAs = bullish bias; below = bearish
  3. MAs act as dynamic support/resistance in trending markets
  4. Golden Cross (50 above 200) = broad bullish signal
  5. Avoid using MAs as the sole indicator in ranging markets

A simple moving average (SMA) takes the mean of the last N closing prices. An exponential moving average (EMA) weights recent prices more heavily, making it more responsive. Common periods: 20 (short-term), 50 (medium), 200 (institutional long-term).

Moving averages serve as dynamic support in uptrends and dynamic resistance in downtrends. A Golden Cross (50 EMA above 200 EMA) is broadly bullish; a Death Cross the inverse.

Related lessons