Types of Stocks Trading Moving Averages
There are four types of stocks moving averages:
- Simple stocks moving average
- Exponential stocks moving average
- Smoothed stocks moving average
- Linear weighted stocks moving average
The difference between these 4 stocks moving averages is the weight assigned in to the most recent stocks price data.
Simple Moving Average
Stocks Trading SMA indicator applies equal weight to the stocks data used to calculate the simple moving average and is calculated by summing up the stocks price periods of a stocks chart and this value is then divided by the number of such stocks price periods. For example stocks simple moving average 10, adds the stocks price data for the last 10 stocks price periods and divides them by 10.
Exponential Moving Average
Stocks Trading EMA indicator applies more weight to the most recent stocks price data and is calculated by assigning the latest stocks price values more weight based on a percent P, multiplier that is used to multiply and assign more weight to the latest stocks price data.
Linear Weighted Moving Average
Stocks Trading LWMA indicator moving averages applies more weight to the most recent stocks price data and the latest data is of more value than earlier stocks price data. Linear Weighted stocks moving average is calculated by multiplying each of the stocks closing stocks prices within the series, by a certain weight coefficient.
Smoothed Moving Average
Stocks Trading SMMA Indicator is calculated by applying a smoothing factor of N, the smoothing factor is composed of N smoothing for N stocks price periods.
The stocks chart example illustrated and explained below shows SMA, EMA and LWMA. The SMMA stocks moving average is not commonly used so it is not shown below.
The LWMA stocks indicator reacts fastest to stocks price data, followed by the EMA and then the SMA.
SMA, LWMA, EMA - Types of Stocks Trading Moving Averages - SMA, EMA and LWMA
Day Stocks Trading with Exponential and Simple Moving Averages
The SMA and EMA stocks moving averages are the most commonly used Moving averages to trade stocks. Whereas the EMA stocks moving average has a more sophisticated method of calculation, its more popular than the SMA stocks moving average.
Simple Moving Average is the arithmetic mean of the closing stocks prices in the stocks price period based on the set time period where each time period is added and then it is divided by the number of time stocks price periods chosen. If 10 is the stocks price period used the stocks price for the last ten stocks price periods added up then it is divided by 10.
SMA stocks indicator is the result of a simple arithmetic average. Very simple and some Stocks traders tend to associate with the stocks trend since it closely follows stocks price action.
EMA on the other hand uses an acceleration factor and it is more responsive to the stock trend.
The SMA stocks moving average is used in stocks charts to analyze stocks price action. If the stocks price action in more than 3 or 4 time stocks price periods the SMA then it's an indication that long stock trades should be closed immediately and the bullish momentum of the buy stocks trade is waning.
The shorter the SMA stocks price period the faster it is to respond to stocks price change. SMA stocks indicator can be used to show direct information regarding the stocks trend of the stocks market and the strength by looking at its slope, the steeper or more pronounced slope of the SMA is, the stronger the Stocks trend.
The Exponential Moving Average is also used by many traders in the same way but it reacts faster to the stocks market moves and therefore it is more preferred by some stock traders.
The SMA and EMA can also be used to generate entry and exit points when stocks. These Moving averages can also be combined with Fibonacci and ADX stocks indicators to generate confirmation the stocks signals generated by these moving averages.
