Moving Averages Explained: SMA, EMA, and How to Use Them

Moving averages are the most widely used technical indicator in trading. They smooth out price action, reveal trends, and provide clear support and resistance levels.

Whether you're a day trader watching the 9 EMA or a long-term investor tracking the 200-day SMA, understanding moving averages will improve your trading decisions.

This guide explains how moving averages work, which types and periods to use, and practical strategies you can apply immediately.

What Is a Moving Average?

A moving average calculates the average price over a specific number of periods, then "moves" forward as new data comes in.

Example: A 10-day moving average adds up the last 10 closing prices and divides by 10. Tomorrow, it drops the oldest price and adds today's close.

What it does:

• Smooths out daily price fluctuations
• Shows the underlying trend direction
• Creates dynamic support and resistance levels
• Filters noise from signal

Visual representation:

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Price: 50, 52, 51, 53, 54, 55, 53, 52, 54, 56
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10-day SMA = (50+52+51+53+54+55+53+52+54+56) / 10 = 53

Types of Moving Averages

Simple Moving Average (SMA)

The most basic type. All prices are weighted equally.

Formula:

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SMA = (P1 + P2 + P3 + ... + Pn) / n

Characteristics:

• Smooth, stable line
• Lags behind price
• Less reactive to sudden moves
• Good for identifying major trends

Best for: Long-term trend analysis, identifying major support/resistance

Exponential Moving Average (EMA)

Gives more weight to recent prices.

Characteristics:

• More responsive to recent price action
• Less lag than SMA
• Reacts faster to reversals
• Can produce more false signals

Best for: Short-term trading, catching trend changes early

SMA vs EMA: Side-by-Side

Which to use?

• Use SMA for identifying major trends and long-term levels (50-day, 200-day)
• Use EMA for short-term trading and faster signals (9, 12, 21-day)
• Many traders use both — EMA for entries, SMA for trend confirmation

Other Moving Average Types

Weighted Moving Average (WMA): Linear weighting, most recent prices weighted highest.

Volume Weighted Average Price (VWAP): Incorporates volume. Popular for intraday trading.

Hull Moving Average (HMA): Reduces lag while maintaining smoothness. Good for trend following.

Key Moving Average Periods

Different periods serve different purposes:

Short-Term (5-20 periods)

Characteristics:

• Hugs price closely
• Frequent crossovers
• Good for timing entries
• Noisy on its own

Intermediate (21-100 periods)

Characteristics:

• Balance between responsiveness and smoothness
• Major support/resistance levels
• Widely watched by institutions

Long-Term (100-200+ periods)

Characteristics:

• Defines bull vs bear markets
• Major institutional level
• Slow to change, highly significant when it does

The 50-Day and 200-Day Moving Averages

These two deserve special attention because they're the most widely followed.

The 50-Day Moving Average

What it represents: Approximately 10 weeks of trading — one quarter's worth of price data.

Why it matters:

• Institutional benchmark for intermediate trend
• Often acts as support in uptrends
• Breaking below 50-day can trigger selling
• Many funds won't buy stocks below their 50-day

How to use it:

• Uptrend: Look for bounces off the 50-day MA as buying opportunities
• Downtrend: Look for rejections at the 50-day MA as shorting opportunities
• Crossover: Price crossing above/below signals potential trend change

The 200-Day Moving Average

What it represents: Approximately one year of trading data.

Why it matters:

• Defines bull market vs bear market
• The most watched moving average globally
• Price above 200-day = bullish
• Price below 200-day = bearish

How to use it:

• Bull market filter: Only buy stocks above their 200-day MA
• Bear market filter: Avoid or short stocks below their 200-day MA
• Major support: In strong uptrends, the 200-day often holds as support
• Major resistance: In downtrends, rallies often fail at the 200-day

The Relationship Between 50-Day and 200-Day

When the 50-day crosses the 200-day, it's a significant event:

• Golden Cross: 50-day crosses ABOVE 200-day → Bullish
• Death Cross: 50-day crosses BELOW 200-day → Bearish

More on these crossovers below.

Moving Average Crossover Strategies

Strategy 1: Golden Cross / Death Cross

The most famous moving average strategy.

Golden Cross (Bullish):

• 50-day SMA crosses above 200-day SMA
• Signals long-term trend turning bullish
• Often followed by sustained rallies

Death Cross (Bearish):

• 50-day SMA crosses below 200-day SMA
• Signals long-term trend turning bearish
• Often followed by continued weakness

How to trade it:

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GOLDEN CROSS SETUP:
1. Wait for 50-day to cross above 200-day
2. Confirm with price above both MAs
3. Enter on pullback to 50-day MA
4. Stop loss below 200-day MA
5. Target: Trail with 50-day MA

DEATH CROSS SETUP:
1. Wait for 50-day to cross below 200-day
2. Confirm with price below both MAs
3. Short rallies to 50-day MA
4. Stop loss above 200-day MA
5. Cover: Trail with 50-day MA

Caution: These are lagging signals. By the time the cross occurs, a significant move has already happened. Use as confirmation, not primary signal.

Strategy 2: Fast/Slow EMA Crossover

More responsive than the 50/200 cross.

Common pairs:

• 9 EMA / 21 EMA (short-term)
• 12 EMA / 26 EMA (MACD basis)
• 20 EMA / 50 EMA (intermediate)

Rules:

• Buy when fast EMA crosses above slow EMA
• Sell when fast EMA crosses below slow EMA
• Use price position relative to both as confirmation

Example setup:

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ENTRY: 9 EMA crosses above 21 EMA, price above both
STOP: Below recent swing low or below 21 EMA
TARGET: Trail with 9 EMA, exit when it crosses back down

Strategy 3: Price/MA Crossover

Simplest approach — trade based on price crossing the MA.

Rules:

• Buy when price crosses above the MA
• Sell when price crosses below the MA

Best periods: 20 EMA or 50 SMA

Problem: Lots of whipsaws in choppy markets.

Solution: Add filters:

• Only trade crossovers in the direction of the longer-term trend
• Require the crossover to "hold" for 2-3 days
• Use volume confirmation

Using Moving Averages as Support and Resistance

Moving averages act as dynamic support and resistance levels.

MA as Support (Uptrend)

In an uptrend, pullbacks often stop at key moving averages:

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Strong uptrend support levels:
1st test: 10/20 EMA
2nd test: 50 SMA
3rd test: 200 SMA (last line of defense)

How to trade:

1. Identify stock in uptrend (higher highs, higher lows)
2. Wait for pullback to 50-day MA
3. Look for bounce/reversal candle
4. Enter with stop below MA
5. Target: Previous high or higher

MA as Resistance (Downtrend)

In a downtrend, rallies often fail at key moving averages:

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Strong downtrend resistance levels:
1st test: 10/20 EMA
2nd test: 50 SMA
3rd test: 200 SMA (major resistance)

How to trade:

1. Identify stock in downtrend
2. Wait for rally to 50-day MA
3. Look for rejection candle
4. Short with stop above MA
5. Target: Previous low or lower

When MAs Stop Working as Support/Resistance

Moving averages fail when:

• Trend changes direction
• Strong news overwhelms technicals
• MA becomes too obvious (crowded trade)
• Multiple MAs cluster together (confusion)

Rule: When a stock slices through an MA with volume, the trend is likely changing.

Multiple Moving Average Strategies

Moving Average Ribbon

Display 6-8 moving averages at once to visualize trend strength.

Common ribbon setup:

• 10, 20, 30, 40, 50, 60, 70, 80 EMAs

How to read it:

• Expanding ribbon: Strong trend, MAs spreading apart
• Contracting ribbon: Trend weakening, MAs coming together
• Twisted ribbon: No clear trend, choppy conditions
• All MAs aligned: Strong trend, trade with it

Three Moving Average System

Use three MAs for trend, timing, and confirmation.

Example setup:

• 200 SMA: Long-term trend filter
• 50 SMA: Intermediate trend
• 20 EMA: Entry timing

Rules:

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LONG SETUP:
- Price above 200 SMA (bull market)
- Price above 50 SMA (intermediate uptrend)
- Entry: Pullback to 20 EMA

SHORT SETUP:
- Price below 200 SMA (bear market)
- Price below 50 SMA (intermediate downtrend)
- Entry: Rally to 20 EMA

Moving Averages for Different Timeframes

Day Trading

Chart: 1-minute, 5-minute, 15-minute

Key MAs:

• 9 EMA — Immediate momentum
• 20 EMA — Short-term trend
• 50 SMA — Intraday anchor
• VWAP — Volume-weighted average (critical for day trading)

Strategy:

• Trade in direction of 50 SMA
• Use 9/20 EMA crossovers for entries
• Respect VWAP as major intraday support/resistance

Swing Trading

Chart: Daily

Key MAs:

• 10/20 EMA — Entry timing
• 50 SMA — Intermediate trend
• 200 SMA — Long-term filter

Strategy:

• Only trade stocks above 200-day (bullish bias)
• Buy pullbacks to 20 or 50-day MA
• Use 10 EMA to trail stops

Position Trading / Investing

Chart: Daily or Weekly

Key MAs:

• 50 SMA — Intermediate trend
• 150 SMA — Mark Minervini's key level
• 200 SMA — Long-term trend

Strategy:

• Buy stocks above all three MAs
• Hold while price stays above 50-day
• Exit if 50-day crosses below 200-day

Common Moving Average Mistakes

Mistake 1: Using MAs in Choppy Markets

Moving averages work best in trending markets. In sideways, choppy conditions, you'll get whipsawed repeatedly.

Solution: Add a trend filter. Only trade MA signals when ADX > 25 or when price is clearly trending.

Mistake 2: Too Many Moving Averages

Cluttering your chart with 10 different MAs leads to paralysis.

Solution: Pick 2-3 MAs maximum. Know what each one is for.

Mistake 3: Ignoring the Larger Trend

Trading short-term MA signals against the major trend is fighting the tide.

Solution: Always check the 200-day MA first. Trade in its direction.

Mistake 4: Expecting Precision

MAs are zones, not exact prices. A stock might bounce at 49.80 when the 50-day MA is at 50.20.

Solution: Think of MAs as areas of interest, not exact levels. Give them a buffer zone.

Mistake 5: Not Adjusting for Volatility

A 50-day MA means different things for a stable utility stock vs. a volatile tech stock.

Solution: For volatile stocks, use longer MAs or EMA instead of SMA. For stable stocks, shorter MAs work fine.

Setting Moving Average Alerts

Don't stare at charts all day. Set alerts at key MA levels.

Alert Ideas

Trend change alerts:

• Price crossing above/below 200-day MA
• Golden cross or death cross forming
• 50-day MA turning up/down

Entry opportunity alerts:

• Price pulling back to 50-day MA
• Price touching 20 EMA in uptrend
• 9 EMA crossing 21 EMA

Exit warning alerts:

• Price breaking below 50-day MA
• 50-day MA starting to flatten
• Price falling to 200-day MA

With Stock Alarm

Set alerts for:

• Price crossing specific MA levels
• Percentage distance from key MAs
• Technical crossovers

Get notified when your watchlist stocks reach important moving average levels instead of watching charts constantly.

Quick Reference: Moving Average Cheat Sheet

Periods

Signals

Rules of Thumb

1. Trade with the 200-day — Don't fight the major trend
2. 50-day is your friend — Best single MA for swing trading
3. EMA for speed, SMA for stability — Use both appropriately
4. MAs work best in trends — Avoid in choppy markets
5. Think zones, not lines — MAs are approximate levels

Frequently Asked Questions

What is the difference between SMA and EMA?

SMA (Simple Moving Average) weights all prices equally over the period. EMA (Exponential Moving Average) gives more weight to recent prices, making it more responsive to new information. EMA reacts faster to price changes but can give more false signals. SMA is smoother but lags more.

What are the best moving average periods to use?

The most widely used periods are: 10 and 20 for short-term trends, 50 for intermediate trends, and 200 for long-term trends. The 50-day and 200-day moving averages are watched by the most traders and institutions, making them self-fulfilling support/resistance levels.

What is a golden cross?

A golden cross occurs when a shorter-term moving average (typically the 50-day) crosses above a longer-term moving average (typically the 200-day). It's considered a bullish signal indicating potential upward momentum. The opposite is a death cross, which is bearish.

Should I use moving averages for day trading?

Yes, but use shorter periods on intraday charts. Common day trading MAs include the 9, 20, and 50 periods on 1-minute, 5-minute, or 15-minute charts. The VWAP (Volume Weighted Average Price) is also popular for intraday trading as a dynamic support/resistance level.

Why do stocks bounce off moving averages?

Moving averages act as support and resistance because many traders watch them. When a stock pulls back to its 50-day MA, buyers who use that level step in. This collective behavior creates self-fulfilling prophecies — the more traders watch a level, the more likely it is to hold.

Related Articles

Build your technical analysis toolkit:

• RSI Indicator Guide — Add momentum confirmation to moving average signals
• Volume Analysis Guide — Confirm breakouts with volume
• How to Read Stock Charts — Master chart reading fundamentals
• Trading Risk Management — Set stops based on moving average levels
• How to Build a Watchlist — Track stocks near key moving averages