What it is
A moving average is the average close over the last N candles, redrawn on every candle. It smooths price into a line that shows the direction the market has been going. It is not a prediction; it lags by construction.
Simple versus exponential
- SMA weights every candle equally.
- EMA weights recent candles more, so it turns sooner and hugs price more closely.
Neither is better. EMA reacts faster and whipsaws more; SMA is slower and steadier. Pick one and learn its behaviour.
Periods people watch
| Period | Why it matters |
|---|---|
| 20 | Roughly one month of daily candles; short-term trend |
| 50 | Medium-term; a common pullback target in trends |
| 200 | Long-term; the line most institutions quote |
Because so many traders watch the 50 and the 200, price often reacts to them — which makes them worth watching whether or not you believe in the maths.
Two honest uses
- 1.Trend filter. Price above a rising 200 EMA: look for longs only. Below a falling one: shorts only. It keeps you out of counter-trend trades, which is most of its value.
- 2.Dynamic level. In a trend, pullbacks often stop at the 20 or 50 EMA. Treat it as a moving support or resistance zone — a place to look for a reaction, not a place to buy blindly.
Summary
A moving average is smoothed history. Use it to know which direction to trade and where a pullback might end; do not expect it to tell you when.