Let us first summarize the exponential moving average. When choosing a moving average that can react quickly to price changes and trends, then the exponential moving average is the one to choose. Act fast in finding a trend and you act fast in making money....
What is a moving average, you ask? Well, instead of looking at a jagged chart moving up and down you could choose to smooth out its price movements with a moving average. Therefore, a moving average is derived from the price of a stock over...
A simple moving average is formulated by adding up the last X number of market days’ closing prices and dividing that total by X. For example, if you wanted to calculate a stock XYZ’s 3 day simple moving average. You would add up 3 day’s...
With simple averages the calculation is, well, simple. The simplicity of the calculation can sometimes cause a bit of a flaw to the SMA. The flaw is due to spikes in the price of a security. For example, if you were to calculate the 4 day SMA of stock XYZ...