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Different Moving Averages
The 3 most popular Moving Averages are the Simple
Moving Average (SMA), the Weighted Moving Average (WMA) and the Exponential
Moving Average (EMA)
Simple Moving Average
(SMA) – All
(Closing) prices get equal weighting
Weighted Moving
Average (WMA) – Most
recent price gets Highest weighting, most distant price gets Lowest weighting.
Weighting decreases in EVEN STEPS from the most recent to the most distant
price.
Exponential Moving
Average (EMA) – A
type of WMA – Most recent price gets Highest weighting, most distant price gets
Lowest weighting. Weighting decreases EXPONENTIALLY from the most recent to
most distant price.
The SMA is usually slower than the EMA so it will
give less signals than the EMA, this means fewer losing trades but later Entry.
Because it is weighted the EMA is usually faster
than the SMA so it will give more signals than the SMA, this means earlier
Entry but more losing trades.
The WMA is usually somewhere in between.
To the best of our knowledge, no one knows which
type of Moving Average is used the most and no one has conclusively proved if
one type of Moving Average is better than the other.
Weigh up the advantages and
disadvantages, your choice of Moving Average is yours!
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