65-Day Academy · Day 22 · Technical Analysis
SMA vs EMA — the Actual Math
SMA
Simple Moving Average = the mean of the last N closes. Every day counts equally: on a 20-day SMA, today's price is 1/20 of the value, same as 19 days ago. It is smooth and stable but reacts slowly — a 10% crash takes days to fully register.
EMA
Exponential MA weights recent prices geometrically (a 20-EMA puts ~9.5% weight on today, decaying backward). It hugs price tighter and turns sooner — the cost is more whipsaws in chop. Traders pick EMA for speed (short windows), SMA for stability (the 50/200 institutional lines are SMAs).
The lag trade-off
Every average trades smoothness for lag: longer window = smoother + later. There is no setting that removes lag — it is arithmetic, not a bug. The practical consequence: MA crossovers are trend-CONFIRMATION tools, never turn-spotting tools. If you need the turn early, you need price structure (day 4), not a derivative of it.
What you'll practise
True or false: choosing the right MA period can eliminate the lag between price turns and the MA.
10 XP in the app · introductory
Sources
- Moving Average (MA)Investopedia
- Technical Analysis of the Financial MarketsJohn Murphy
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All lessons are for educational purposes only and are not individualized financial advice, a recommendation, or a solicitation to buy or sell any security. Options involve substantial risk and are not suitable for every investor.