On the same matter of MA average, I would like you to refresh my memory to a question I asked long time ago but unfortunately forgot the answer ( an early Alzheimer' sign ?).
In what instance do you use SMA and EMA ? Are they actually related to whatever price scale is used ? (ie. SMA for linear scale & EMA for log scale ) ...And finally, which one of the two is the most reliable ?
I never never got bored to read your Comments of the Day and listened to your excellent audio videos as I keep learning every day.
Thank you and best regards,
Thank you for this question and I am delighted you are enjoying the service. The question of whether to use a simple or exponential moving average is a matter of taste. Personally, I think an exponential moving average makes more sense because I believe the most recent data should have a slightly greater weighting but other than that there is not much difference.
The biggest point is that the moving average is a trend smoothing device that lags by definition so it is better to think of it as the trend mean rather than a sacrosanct level representing exactly where supply or demand must be reasserted. Better to remember that markets have a tendency to overshoot so it is overextensions relative to the mean which are most important while we often speak of prices encountering resistance or finding support in the region of the MA rather than exactly at the MA. Viewed from that perspective it is more of an academic exercise which calculation method you use.Back to top