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