A bit of chatter about EMA's V SMA's, but I have not seen anyone state 'Why'. Why the difference to use or how.
If you are an LT Investor in IMU, it makes no difference, a GC or DC are long term plays and gives to guidance. ST trader wants to see the moves first to enter or exit a trade, so EMAs are a must!
My knowledge will be a bit rusty (early 90's almost beofre charting on computers), we used to use the algorithms of both to plan the SP movements.
to keep it simple for all to understand, will try to explain.
SMAs. Simple Moving Average. As the name suggests, simple alogrithm. It basically adds all the numbers up and divides it by how many numbers to added up. Remember back to the math days at school to find the 'median' number? So the SMA, adds up the number of days that you want. Most use 8 (or 9), 20 (some use 13), 50, 200. So the more data days that you have the slower it will seem for the line to move. So obviously 50 is 50 days of data, hence why you can see on the IMU chart that the 50 is now in a uptrend as the SP candles have been above the 50 days average so the average starts to climbs higher. The 200 will plateau then start to climb too, but can take up to 200days of trading.
EMAs. Exponential Moving Average. This is a weighted moving average. It not simply 8days of data divided by 8 days. The algorithm is a bit more complex; I use to know how to use it, now the computer does it for me/us, but it is available on google. So an example of 8ema, the result is that the first day of data may only have 8%, second day 12%, etc up to the last day which maybe 18%. The data (line) displayed is weighted to the most result input data, hence a line on a chart is more reactionary. This give the 'trader' a much better picture as to when the SP is moving (up or down). Then when use in conjuction with another line, eg. 20, you can see the trend reversals. Now 20sma is the typical so the you can see the slower line V the faster line moving, again to see the trend reversals. A lot of chatter on here is the 50 V 200. Not overly a concern daily to the trader, but great for the LT investor. In IMU case we have been in a downtrend for some time and a NEW UPTREND is about to start. Hence the chatter. IMO.
Comment, both EMA and SMA are latent indicators, they are using old data, e.g. up to 200days. But when used in conjunction with other chart tools one can be very skilled at seeing what a chart is doing. e.g.
Lastly, Candles. Why do I mention this. Once you have experience in EMA and SMAs, you can then use Candle positions to your advantage. To keep it simple, in IMU's case the Candles are above both the short term SMA and EMAs, which means that the trend will continue upwards. As soon as the Candles start to collide with the 8EMA, it's watch and act, as it is an early indicator that the trend maybe reversing or pulling back or consolidating for another leg up. Does not mean sell, it's just a 'pull back in SP'. Then if/when the Candles crosses the 8EMA or 20SMA, you know that the trend has confirmed the change and the 2 lines will start to trend down as the data input is catching up. Obviously the 8 is quicker as it's only 8days, but 20 takes 20days of data input. So for a trader can again enter or exit before the masses, for example 12 days before others as 8days V 20days (or some use 13).
BBs, the median line you see uses a SMA. Then uses 2 standard deviations from the SMA to give you the channel. So BBs are similar to MA's. Enough on that for now as it's another big lesson on how to use it correctly.
AIMO, I hope that this helps a few of you. Best of luck with IMUs uptrend!!
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