The moving average softens the price so you can see the trend instead of the noise. It is simple, visual and works in almost any market and temporality, that is why it appears in almost all the charts of professional traders. In this guide you will see what they are, how they are calculated, what differences there are between the SMA and the EMA and how to take advantage of them without falling into classic errors.
What is a moving average and what does it measure
A moving average is the average of the price of the last N periods. If you use an average of 20, each candle represents the average of the previous 20 candles. By drawing it on the graph you get a curved line that adapts to the price and that summarizes, at each moment, the average price that buyers and sellers have accepted.
That line gives you three types of information: the direction (if it goes up, the average price goes up); the slope (if it tilts, the trend accelerates); and the distance at the price (if the price separates a lot from the average, there is temporary overbought or oversold).
SMA vs EMA: which one to use and when
| Medium | How it is calculated | Advantage | When to use |
|---|---|---|---|
| SMA (single) | Simple average of the last N closes. | Smoother and more stable; fewer false short-term signals. | Clear trends and time frames from 1h onwards. |
| EMA (exponential) | Give more weight to recent prices. | React to changes sooner; follow the price better. | Intraday, and when you want to react fast. |
In practice many people combine both: a fast EMA for entry management and a slower SMA for filtering the bottom trend. There is no “best” universal average: there is the one that fits your style and your market.
The stocking crosses: golden cross and death cross
When a fast average crosses above a slow one it is called golden cross (golden cross) and is usually read as a bullish signal. When it crosses below, death cross (death cross), bearish signal. The most used pairs are 50 over 200 and 21 over 50.
The problem: the crosses are delayed indicators. When the crossing appears, much of the movement has already occurred, and in lateral ranges they produce erratic entrances and exits. That's why the mature reading is not “buy at the crossover”, but use the crossover as trend filter: if the ordered averages point up, just look for long trades.
- Defined trend: ordered and parallel means (short over long = bullish).
- Recent Cross: the first solid sign of possible change.
- Price Above Average: in a healthy uptrend, retracements find support at EMA 20 or EMA 50.
- Confirmation with price: the crossover gains value if it coincides with a structure break or a session bias.
Typical errors with moving averages
The first is Pillar too many stockings: ten lines on the graph give no more information, just more visual noise. The second is to use crosses without context: in lateral markets they generate constant losses. The third is to ignore the pendente, which is more informative than the crossover itself.
A clean way of working: an average to filter trend (EMA 200 or 50), one for entry management (EMA 20) and, if you want, an additional EMA to measure speed. Nothing else. And remember that stockings work best when they respect the sessions with more volume.
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Frequently asked questions
What is the best moving average to trade?
It depends on the style: the EMA 20 for fast pace, the EMA 50 for medium swing and the EMA 200 for bottom trend. The important thing is that it matches your operating season.
What is the crossing of death?
The crossing of a fast average below a slow one (for example, EMA 50 under EMA 200). It is a classic bearish signal, although very delayed: it should be used as a filter, not as a sales trigger.
Do moving averages work in cryptocurrencies and forex?
Yes - they work in any trending market. In very lateral or illiquid markets, their signals lose reliability, so it is convenient to combine them with volume and structure.
Should I use EMA or SMA?
The EMA reacts earlier and is better for intraday; the SMA is more stable and reduces noise in clear trends. Many traders use EMA for entry and SMA for the background filter.