Q: Should I use simple or exponential moving averages?
A: In my own personal trading and analysis I often use exponential moving
averages. This is especially true in the futures markets. However, in my stock
market analysis and commentaries, I often simple moving averages such as the
well-watched 50-day and 200-day. My feeling is with so many traders focus on
these averages, it often becomes a self-fulfilling prophecy.
The EMAs, being a weighted moving average, tend to “catch up” to price faster.
This is especially true in fast markets. The simple moving averages, being an
actual average, give you a true representation of the “average” price.
It really becomes a matter of personal preference. I like to have all tools at
my disposal. Therefore, I’ll often mix it up a bit, using simple for short-term
periods (say 10 days or less) and EMAs for longer-term periods (say 20 days or
more).
Dave Landry