A moving average is a simple way to smooth out price action over time. By "moving average", we mean that you are taking the average closing price of a currency for the last "x" number of periods.
Simple Moving Average (SMA)A simple moving average is the simplest type of moving average. It is calculated by taking the last "x" period's closing prices and then dividing that number by "x".
Simple moving averages are slower to respond to price action but will save you from spikes and fakeouts.
Exponential Moving Average (EMA)Exponential moving averages give more weight to the most recent periods.
Exponential moving averages put more weight to recent prices and therefore show us what traders are doing now.
The difference between SMA and EMA:
SMA
Pros:
Displays a smooth chart, which eliminates most fakeouts.
Cons:
Slow moving, which may cause a lag in buying and selling.
EMA
Pros:
Quick moving, and is good at showing recent swings.
Cons:
More prone to cause fakeouts and give errant signals.
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