Moving Averages Explained: SMA vs EMA
A moving average is the average closing price of the last N sessions, recalculated every day. It smooths out the noise so you can see the direction of the trend.
How it's calculated
SMA (simple): add the last N closes and divide by N. EMA (exponential): gives more weight to recent days, so it reacts faster. Common periods are 20 (short), 50 (medium) and 200 (long).
How traders use it
Price above a rising average is read as an uptrend; below a falling one, a downtrend. A shorter average crossing above a longer one (for example 50 over 200, the “golden cross”) is a classic buy signal, and the opposite cross a sell signal.
What people say
Averages always lag: they confirm a move after it has started, and in sideways markets they give many false crosses. A famous 1992 study by Brock, Lakonishok and LeBaron found simple moving-average rules worked on the Dow Jones from 1897 to 1986. Later research corrected for “data snooping” (testing many rules until one works by chance) and found much weaker evidence in more recent data.
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Open a real hidden-stock chart with only this indicator turned on and see if it helps you beat the market.
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