Discussion in 'Technical Analysis' started by Took2Summit, Oct 7, 2011.
Can someone help me understand which one to use, or the differences between the two?
Both are moving averages, but EMA gives more weight to values in the most recent past, whereas SMA weights equally all values that are averaged.
What are you trying to do?
I sell covered calls on my positions and use the moving averages to help me decide whether to do ITM, ATM, or OTM.
Most CCs are monthly, some weekly.
I use the 21 and 50, have been using the EMA as they were the defaults on my screen.
Thanks for the reply.
The two can be equated through their lags. The n-bar sma and the n-bar ema have the same lag. To get the n-bar ema, you just use a smoothing factor of 2/(n+1). The advantage of the ema is that you can use nonintegral values of n, and you can't do that for the sma. Among other things, you can optimize the value of n if you are using the ema and you have some performance criterion that needs maximizing or some cost criterion that needs minimizing.
Use the ema/ sma that best characterizes the personality of what youâre trading
I remember someone once posting (and Iâm paraphrasing)
âI placed a line on a chart and price respected itâ
To which I thought bullshit (based on the context in which that sentence was stated)
Price doesnât even know we exist
I place a line on a chart and price acknowledges itâ¦ simply means I am in tune with price - as I must always be
Something to ponder as you decide which line to use Sir
Technical analysis has a failure rate, so just keep an eye on both.
Indicators are purely reflections of price action and pretty poor ones at that always being several steps behind , Try watching TV by the relection of a window or mirror , doesnt make sense hey ?
How about looking directly at price action and attempting to understand it . buyer overcoming sellers or visa versa isnt that difficult to see just looking at naked charts . price action is "pure" , not as subjective as indicators ,
convergence /divergence ?? what does that really mean . its means its a gray area , is that useful , not in my world , as a trader i need black and white
Mas xing whats the good in that , not a lot , naked eye tells you of a Trendline break before any cross and its black and white
Take all the subjective shit out of your trading and you'll be amazed at how decisive your trading will be
swing highs and lows help define trends and give you an idea of where the risk is
if what you use is generic its crap , to have an edge you need to be doing something no-one or very few are doing/using
hope some of that helps..............
You can play with averages, different methods of arriving at them and all that... and get one with so little lag that it doesn't tell you anything more than what an observation of price alone would do!! At the other end of the spectrum would be long averages wherein a bar 200 bars ago has the same impact on the current situation as yesterdays bar.. It's more art than science the way I apply it, if a type of an average works in the context of my system under test then it's good... It's easy enough to write code that tests sytems over average types, bar interval, indicator parameters, and just virtually every possible type of variable and just let the computers chug away at it optimizing.. then one can take the results and see if one can make sense of it...
What the computers can't do is get you this side of random. The system designer first has to use that greatest of all computers, the one between his ears, to get his system to have components that bring it this side of random, after that the computers can be a big help...
Like them both;
50 ema,50 sma.
If i had to pick only one, may pick the sma. its slower, less comissions, less slippage on a slower sma like a 200 sma. But i dont have to pick just one. And even though sma is slower [less responsive] on a 1 year SLVchart ,1 year SPY,chart ,sma gives a quicker sell signal.
I like them both;that way even a 200sma/200 ema gives one some room for discretion...........................................................
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