SMA, EMA, LWMA and SMMA

There are four types of moving averages:

1. Simple moving average
2. Exponential moving average
3. Smoothed moving average
4. Linear weighted moving average

The difference between these 4 moving averages is the weight assigned in to the most recent stock price data.

SMA Indicator

Stock Indices SMA indicator applies equal weight to the stock indices 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 stock price periods. For example simple moving average 10, adds the price data for the last 10 price periods and divides them by 10.

EMA Indicator

Stock Indices EMA indicator applies more weight to the most recent stock price data and is calculated by assigning the latest stock price values more weight based on a percent P, multiplier that is used to multiply and assign more weight to the latest stock price data.

LWMA Indicator

Stock Indices LWMA indicator moving averages applies more weight to the most recent stock price data and the latest data is of more value than earlier stock 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

Stock Indices SMMA Indicator is calculated by applying a smoothing factor of N, the smoothing factor is composed of N smoothing for N price periods.

The stock chart example illustrated below shows SMA, EMA and LWMA. The SMMA moving average is not commonly used so it is not shown below.

The LWMA stock indicator reacts fastest to stock price data, followed by the EMA and then the SMA.

SMA, LWMA, EMA - Types of Stock Moving Averages - SMA, EMA & LWMA

Day Stock Indices with Exponential & Simple Moving Averages

The SMA and EMA moving averages are the most commonly used Moving averages to trade stock indices. 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 price periods chosen. If 10 is the price period used the price for the last ten stock price periods added up then it is divided by 10.

SMA stock indicator is the result of a simple arithmetic average. Very simple and some Stock traders tend to associate with the stock trend since it closely follows 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 price action. If the price action in more than 3 or 4 time price periods the SMA then it's an indication that long stock trades should be closed immediately and the bullish momentum of the buy stock trade is waning.

The shorter the SMA price period the faster it is to respond to stock price change. SMA stock indicator can be used to show direct information regarding the stock trend of the stock market and 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 stock market moves and therefore it is more preferred by some stock traders.

The SMA and EMA can also be used to generate entry and exit points when stock indices. These Moving averages can also be combined with Fibonacci and ADX indicators to generate confirmation the stock signals generated by these moving averages.