Types of Moving Averages

There are 4 types of trading MAs:

Simple indices trading Moving Average
Exponential indices trading Moving Average
Smoothed indices trading Moving Average
Linear weighted indices trading Moving Average

The difference between these 4 moving averages is the weight assigned in to the most recent price data.

Simple Moving Average

Index SMA technical indicator applies equal weight to the trading data used to calculate the simple moving average and is calculated by summing/adding up the price periods of a chart and this value is then divided by the number of such stock price periods. For illustration trading simple moving average 10, adds the price data for the last 10 stock price periods and divides them by 10.

Exponential Moving Average

The Index EMA indicator prioritizes more recent price information in its calculation, assigning greater significance to the latest price values through a percentage P multiplier used to emphasize the most current data points.

Linear Weighted Moving Average

The Index LWMA indicator, a variant of moving averages, assigns greater significance to the most recent price observations, valuing the latest data more highly than preceding prices. The calculation for the Linear Weighted Index Moving Average involves multiplying each closing price within the series by a specific assigned weight coefficient.

Smoothed Moving Average

The Index SMMA indicator works by using a smoothing factor of N. This factor smooths prices over N periods for stock data.

The chart example illustration presented & shown below shows SMA, EMA and LWMA. The SMMA moving average is not oftenly used so it is not shown below.

The LWMA (Linear Weighted Moving Average) indicator reacts most swiftly to recent pricing information, followed by the EMA (Exponential), and lastly the SMA (Simple).

SMA, LWMA, EMA - Types of Moving Averages

SMA, LWMA, EMA - Types of MAs - SMA, EMA and LWMA

Intraday Trading with Exponential & Simple Moving Averages

The SMA & EMA trading moving averages are the most often used Moving averages to trade indices. Whereas the EMA moving average has got a more sophisticated formula of calculation, its more popular than the SMA trading Moving Average.

A Simple Moving Average is the average of closing prices over a certain time, based on the chosen timeframe. Each timeframe's price is added up and then divided by the number of time periods chosen. If you use 10 periods, add the prices for the last ten periods and divide by 10.

SMA stock indicator is the result of a simple arithmetic mean average. Very simple and some traders will tend to associate with the price trend since it closely follows price action.

EMA on the other hand uses an acceleration factor & it's more responsive to the price trend.

Simple moving averages on stock charts show price trends. If prices stay above the SMA for three or four periods, close long positions fast. This hints the uptrend is fading.

The shorter the Simple Moving Average (SMA) period, the quicker it reacts to price changes. The SMA indicator provides direct information about market trends and momentum by analyzing its slope: a steeper SMA slope indicates a stronger trend.

Many traders also use the Exponential Moving Average in the same way, but it reacts more quickly to market changes, making it a favorite for some.

The SMA and EMA can also help you find good times to buy and sell when trading indices. These MAs can also be used with Fib and ADX trading tools to confirm the signals they give.

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