What is SMA & EMA?
Moving averages reduce short-term price noise by averaging a defined number of observations. The two most common forms are the Simple Moving Average (SMA) and Exponential Moving Average (EMA).
What does it measure?
Average price over a rolling lookback period. An EMA gives more weight to recent prices and therefore reacts faster than an SMA using the same period.
How is it calculated?
SMA = arithmetic mean of the last N prices. EMA uses an exponential weighting factor so recent observations have progressively greater influence.
Common interpretation.
- A rising average describes upward movement in the underlying lookback window.
- A falling average describes downward movement.
- The relationship between faster and slower averages can summarize changes in trend structure.
- Price crossing an average should not automatically be treated as a complete trading signal.
How traders use it for market context.
- Short EMAs are often used to describe intraday trend structure in liquid futures.
- Longer averages can provide higher-timeframe context even when entries are evaluated on shorter charts.