EMA vs SMA Comparison

[gundamzd 3]

Hello BBT members,

I have noticed that 50&200 EMAs seem to provide more accurate support / resistance than SMAs. I did a couple screenshots on some of the popular stocks for comparison, see below.

It does not work in every case, but in general the EMAs seem to "hug" the candles more often and more closely. I think I'm switching to 50&200 EMAs. What are your thoughts?

[Carlos M. 232]

Pretty cool analysis! I always wonder what are the sound difference between these two, this comparison is great. Just curious, did you try this also on other time frames like a 5 or 15?

[gundamzd 3]

I only tried it on 1 min. After reading an article I have decided to remove the 50 and 200 MA from my 5 min charts. After reviewing my journal these long period MAs seem to be irrelevant for short term trend trades and create too much confusion for me. 

[Robert H 455]

I've heard another seasoned trader say that beginners should remove the MA's when first starting out. This will reduce the number of things to keep track of. Your focus should be on price action (candlesticks), and since these respect the MA"s, you will observe their effects indirectly anyways. However, at some point you should add them back as other trades definitely use them and our goal is to move with the herd.

Traders use a plethora of MA's from 4, 8, 9, 10, 12, 15, 20, 50, 100, 200 etc. There is absolutely no consensus. Even within the same MA (i,e 8 SMA), there can be variance based on the source: Open, High, Low, Close, (High+Low)/2, (High+Low+Close)/3, (Open+High+Low+Close)/4, etc.

As far as the 50 and 200 MA's being less applicable on smaller timeframes: this really depends on your timeframe and strategy. I ignore MA's on the 1/2 minute charts entirely for Extreme Reversals. The 15-minute chart MA's are given priority. Even the 5-min MA's are mere consolidation points in longer 15, 30, 60 minute trends.

My two cents regarding EMA vs SMA: Moving Averages are areas. Prices will never respect them to the penny given the inherent chaos of the markets. By definition an EMA will stay closer to the price because recent periods are given more weight in the calculation. The key is to pick a set of MA's and stick to them. The moment you start changing based on prior observations, you will be on a never ending quest for the perfect combination. Hint: there is none.

Best of luck!

[gundamzd 3]

Thanks Robert, this makes a lot of sense. I should definitely focus on price action and not the intricacies of moving averages. I'll stick to my new set of MAs and not think about tweaking them any more.

[Carlos M. 232]

Agree with Robert  as well. This is what has attracted a lot of us to the way Andrew brakes down trading in his book with very simple and effective MA's and focus on the price action and not trying to do to much creating confusion.