This lesson in the School of Pipsology confuses me.
It says “Simple moving averages are the simplest form of moving averages, but they are susceptible to spikes.”
then at the end it says:
“Simple moving averages are slower to respond to price action, but will save you from spikes and fake outs.”
SMA are susceptible to spikes but it will save you from spikes and fake outs? Seems like a contradiction or am I misunderstanding something?
Thanks in advance!
On the face of it there is a contradiction there. Any MA, in fact almost any indicator, can be affected by price spikes, but it depends a lot on what type of MA, what periods are used and on what basis the MA is calculated.
For example, if an MA is calculated only using closing prices then any spike during a particular candle will not impact on the calculation at the close of that candle. - but it will cause movement of the MA during the current candle’s development as it is always repainting until the close of that current candle.
A significant close will, of course, create an impact on the MA, but its impact is more on a short MA than wíth a long MA. The effect of abnormal closes can be eliminated to a certain extent by using typical or median prices instead of closes in the calculations.
The best way to see and compare the merits and drawbacks of various MAs is simply to plot them on the same chart. For example, here are two 15-period MAs. The red line is EMA and the blue line is SMA. You can see how the EMA is always the first to react to near term price moves due to the fact that the nearest prices have a greater weighting in the formula. This enhanced sensitivity can be both good news and bad news. It can show a potential change in bias sooner but can also give more false signals.
Thanks a lot for your detailed explanation, Manxx! Indeed, this forum is great to have helpful members like you. 
Use EMA, I get much better result here.
Thanks for the recommendation. I think I should give both a try to know which one works best for me.
You are always welcome mate! Hope for the best, happy learning.
