The only difference between these two types of moving average is the sensitivity each one shows to changes in the data used in its calculation.

More specifically, the exponential moving average (EMA) gives a higher weighting to recent prices than the simple moving average (SMA) does, while the SMA assigns equal weighting to all values. The two averages are similar because they are interpreted in the same manner and are both commonly used by technical traders to smooth out price fluctuations.

The SMA is the most common type of average used by technical analysts and it is calculated by dividing the sum of a set of prices by the total number of prices found in the series. For example, a seven-period moving average can be calculated by adding the following seven prices together and then dividing the result by seven (the result is also known as an arithmetic mean average).

Given the following series of prices:
$10, $11, $12, $16, $17, $19, $20
The SMA calculation would look like this:
$10+$11+$12+$16+$17+$19+$20 = $105
7-period SMA = $105/7 = 15

Since EMAs place a higher weighting on recent data than on older data, they are more reactive to the latest price changes than SMAs are, which makes the results from EMAs more timely and explains why the EMA is the preferred average among many traders. As you can see from the chart below, traders with a short-term perspective may not care about which average is used, since the difference between the two averages is usually a matter of mere cents. On the other hand, traders with a longer-term perspective should give more consideration to the average they use because the values can vary by a few dollars, which is enough of a price difference to ultimately prove influential on realized returns - especially when you are trading a large quantity of stock.


As with all technical indicators, there is no one type of average that a trader can use to guarantee success, but by using trial and error you can undoubtedly improve your comfort level with all types of indicators and, as a result, increase your odds of making wise trading decisions.

To learn more about moving averages, see Basics Of Moving Averages and Basics Of Weighted Moving Averages.

  1. Are exponential moving averages more effective than simple or weighted moving averages?

    Learn about different types of moving averages, as well as moving average crossovers, and understand how they are used in ... Read Answer >>
  2. Why is the Exponential Moving Average (EMA) important for traders and analysts?

    Discover why chartists and technical analysts might use an exponential moving average (EMA) instead of a simple moving average ... Read Answer >>
  3. What is the difference between Exponential Moving Average (EMA) and Weighted Moving ...

    Read about the difference between exponential moving averages and weighted moving averages, two smoothing indicators that ... Read Answer >>
  4. What are the main disadvantages of using the Exponential Moving Average (EMA)?

    Discover the primary differences between exponential and simple moving average indicators, and what disadvantages EMAs can ... Read Answer >>
  5. What is the difference between a simple moving and an exponential moving average?

    Learn about simple moving averages and exponential moving averages, what these technical indicators measure and the difference ... Read Answer >>
  6. What are the main advantages of using Moving Averages (MA)?

    See why moving averages have proven to be advantageous for traders and analysts and useful when applied to price charts and ... Read Answer >>
Related Articles
  1. Trading

    Simple Vs. Exponential Moving Averages

    These technical indicators help investors to visualize trends by smoothing out price movements.
  2. Trading

    How To Use A Moving Average To Buy Stocks

    The Moving Average indicator is one of the most useful tools for trading and analyzing financial markets.
  3. Trading

    Use Moving Averages to Buy Stocks

    A moving average constantly updates a stock's average price, but it cannot predict a stock's performance.
  4. Trading

    Weighted Moving Averages: The Basics

    We take a closer look at the linearly weighted moving average and the exponentially smoothed moving average.
  5. Investing

    Using Moving Averages to Buy ETFs

    Learn how to use moving averages to enter and exit trades in ETFs, and understand some popular technical setups using moving averages.
  6. Investing

    Moving Average Bounce

    Find out how this simple trading strategy can be added into your trading arsenal.
  7. Trading

    The 7 Pitfalls Of Moving Averages

    While moving averages can be a valuable tool, they are not without risk. Discover the pitalls and how to avoid them.
  8. Trading

    Adjusting Strategies to Moving Average Slopes

    Managing interrelationships between price, moving averages and slope can shift the reward: risk equation in your favor.
  9. Investing

    Weighted Average

    Learn how to weigh the relative importances of data points in a calculated average.
  10. Trading

    Using Technical Indicators To Develop Trading Strategies

    Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.
  1. Exponential Moving Average - EMA

    A type of moving average that is similar to a simple moving average, ...
  2. Simple Moving Average - SMA

    A simple, or arithmetic, moving average that is calculated by ...
  3. Linearly Weighted Moving Average

    A type of moving average that assigns a higher weighting to recent ...
  4. Weighted Average

    An average in which each quantity to be averaged is assigned ...
  5. Moving Average Ribbon

    A technique used in technical analysis to identify changing trends. ...
  6. Average Price

    1. A representative measure of a range of prices that is calculated ...
Hot Definitions
  1. Racketeering

    A fraudulent service built to serve a problem that wouldn't otherwise exist without the influence of the enterprise offering ...
  2. Federal Debt

    The total amount of money that the United States federal government owes to creditors. The government's creditors include ...
  3. Passive Management

    A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. ...
  4. Series 7

    A general securities registered representative license administered by the Financial Industry Regulatory Authority (FINRA) ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Expatriation Tax

    An expatriation tax is a tax on someone who renounces their citizenship. In the United States, the expatriation tax provisions ...
Trading Center