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Moving average (SMA and EMA)

The average closing price over the last N periods, plotted as a line; the EMA weights recent prices more heavily.

A fast and a slow moving average crossingA jagged price line with two smoother average lines through it; the fast average dips below the slow one on the left and cuts back above it in the middle, where a circle marks the crossing.pricefast averageslow averagefast crosses belowfast crosses abovethe slow averageAverages of recent closes; the fast one reacts sooner than the slow one.
Fast and slow moving averages crossing. A moving average is the average of the last few closing prices, redrawn each period. An average over fewer periods turns sooner than one over many, so the two lines cross whenever the recent pace of the market changes.

A simple moving average (SMA) adds the last N closes and divides by N. An exponential moving average (EMA) gives more weight to recent prices, so it turns faster. Common lengths are 9, 20, 50, and 200 periods.

Moving averages smooth noise and act as dynamic support and resistance. Their crossovers (golden-cross) are widely watched. They are lagging by design: they tell you what the trend was, not what it will be.

Example: closes of $10, $11, $12, $13, $14 give a 5-period SMA of $12. If the next close is $20, the SMA becomes $14 while a 5-period EMA jumps to about $15.7.

Related: golden-cross, trend, support, vwap

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