Simple Moving Average (SMA)

• SMA is the average of a fixed no. of previous days' closing prices.
• Calculated by summing the prices & dividing by the no. of prices.
• The line joining all these SMA price points is called the SMA line.
• SMA types - 5 days SMA, 15 days SMA, 1 month SMA......
• Less the number of days in the SMA, more is it's reactivity to current market prices.
• More the no. of days in SMA, more it'll display the average trend of the market.

Exponential Moving Average (EMA)

• EMA are weighted averages with recent price points having higher importance/weightage !!
• EMA are more reactive compared to the SMA since they weigh recent price points higher.
• Reactivity to current market is inversely proportional to no. of days considered in the EMA.

Using a Single EMA (50 days)

• Buy when Current Mkt. price > Avg. price. ( this condition implies that people are positive about the stock thus buying at higher than average, thus a BULL market)
• Sell when Current Mkt. price < Avg. price. ( this condition implies that people are negative about the stock thus selling at lower than average, thus a BEAR market)
• Moving averages are extremely useful when a trend is followed and don't work well when the market is sideways.

Moving Average Crossover System

• A combination of signal from 50 day(short term/faster) EMA & 100 day(long term/slower) EMA.
• BUY/LONG : faster EMA > slower EMA