SMA, EMA, LWMA & SMMA
There are 4 types of moving averages:
- Simple moving average
- Exponential moving average
- Smoothed moving average
- Linear weighted moving average
The difference between these 4 moving averages is the weight assigned in to the most recent price data.
SMA Indicator
XAUUSD SMA indicator applies equal weight to the data used to calculate the simple moving average and is calculated by summing up the price periods of a chart and this value is then divided by the number of such gold price periods. For example simple moving average 10, adds the price data for the last 10 price periods & divides them by 10.
EMA Indicator
XAUUSD EMA indicator applies more weight to the most recent price data and is calculated by assigning the latest trading price values more weight based on a percent P, multiplier that is used to multiply & assign more weight to the latest trading price data.
LWMA Indicator
XAUUSD LWMA indicator moving averages applies more weight to the most recent price data and the latest data is of more value than earlier gold price data. Linear Weighted moving average is calculated by multiplying each of the closing prices within the series, by a certain weight coefficient.
SMMA Indicator
XAUUSD SMMA Indicator is calculated by applying a smoothing factor of N, the smoothing factor is composed of N smoothing for N trading price periods.
The chart example shown below shows SMA, EMA & LWMA. The SMMA moving average is not commonly used so it isn't shown below.
The LWMA indicator reacts fastest to gold price data, followed by the EMA & then the SMA.
SMA, LWMA, EMA - Types of MAs - SMA, EMA & LWMA
Day XAUUSD with Exponential & Simple Moving Averages
The SMA and EMA moving averages are the most commonly used Moving averages to trade xauusd. Whereas the EMA moving average has a more sophisticated method of calculation, its more popular than the SMA moving average.
Simple Moving Average is the arithmetic mean of the closing prices in the price period based on the set time period where each time period is added and then it is divided by the number of time gold price periods chosen. If 10 is the price period used the price for the last ten price periods added up then it is divided by 10.
SMA indicator is the result of a simple arithmetic average. Very simple and some traders tend to associate with the trend since it closely follows gold price action.
EMA on the other hand uses an acceleration factor and it is more responsive to the trend.
The SMA moving average is used in charts to analyze gold price action. If the price action in more than 3 or 4 time gold price periods the SMA then it's an indication that long trades should be closed immediately and the bullish momentum of the buy trade is waning.
The shorter the SMA trading price period the faster it is to respond to gold price change. SMA indicator can be used to show direct information regarding the market trend of the market & the strength by looking at its slope, the steeper or more pronounced slope of the SMA is, the stronger the trend.
The Exponential Moving Average is also used by many traders in the same way but it reacts faster to the market moves and therefore it is more preferred by some gold traders.
The SMA and EMA can also be used to generate entry and exit points when xauusd. These Moving averages can also be combined with Fib and ADX indicators to generate confirmation the signals generated by these moving averages.
