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If someone asked me what tool it the most used on common charting platforms, I would guess its the moving average MA. There are almost as many moving averages as there are chart types. All moving averages have a specific number of price-inputs defined by the number of periods the traders chooses. For example a 10 period SMA has 10 inputs. A 20 period EMA has 20 inputs. The difference lies in the weighting of the inputs.
By contrast, an EMA gives more weight to recent price inputs, with past price inputs counting for less and less of the final average as time goes on.
For example, in a 10 period EMA the most recent input price 10 counts for So again, the key difference is the SMA weights all price inputs equally and the EMA gives greater weight to recent price inputs. So which is better? While much depends on the period a trader chooses, an SMA will not turn as quickly as an EMA of the same time period with the same number of inputs.
So choosing one over the other depends on what it will be used for. They can both be very useful when trading Nadex binaries and spreads, as a signal to exit a binary or spread prior to expiration, but choose the faster moving EMA if you struggle emotionally while you are in trades, and the slower SMA if you prefer to hold until expiration. As with all trading advice, control your risk, get educated and then do your own research before implementing anything new into your strategy.
Bob Iaccino has spent the last 24 years in commodities, futures, FX, and equity options. In , Bob began teaching his techniques to the public. In , Bob and his trading partner, Mike Arnold launched Path Trading Partners to continue teaching their trading strategies and launch an international proprietary trading group.
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