Hi,its me again with the lame questions.
Recently i have been reading the education provided by babypips and today im a little lost in the middle of these two indicator functionality that i wanted to understand how it works.In the education that wrote:
âBasically, a simple moving average is calculated by adding up the last âXâ periodâs closing prices and then dividing that number by Xâ
ANDâŚ
"You have the average closing price over the last five hours! String those average prices together and you get a moving average!
If you were to plot a 5-period simple moving average on a 10-minute currency chart, you would add up the closing prices of the last 50 minutes and then divide that number by 5.
If you were to plot a 5 period simple moving average on a 30-minute chart, you would add up the closing prices of the last 150 minutes and then divide that number by 5."
i found myself confused to understand this,Can anyone provide me a video or simple method to make me understand about SMA and EMA.Maybe some people find it useful and others might say stick only to one tools but i just want to learn more.
SMA, Simple Moving Average, is simply the average closing prices of the last x bars. So a 200SMA would be the average of the last 200 closing prices. Its what you would get of you added up all the 200 closing prices and divided that total by 200.
But how important is a difference in a closing price 200 bars back? Surely a change in the last bar is more important than a change in a bar 200 bars ago?
So, the EMA, Exponential Moving Average, is derived in the same way, but its calculation adds more weight to the more recent closing prices. Therefore, maybe it is more useful, as EMAâs as a line on a chart therefore tend to turn upwards from a low earlier than an SMA, and downwards from a high earlier too.
But in practice, theyâre pretty much equivalent, as long as you decide on on e or the other and donât mix SMA and EMA,theyâre both as useful as each other (which actually isnât very).
Donât worry too much over this one detail - if you have a decent strategy, changing SMA to EMA or vice versa will not make it stop working. Most traders using one rather than the other could not tell you why they are anyway, it doesnât matter.
Thanks but i prefer EMA because it looks useful,Still trying to understand it.Playing with it.I have placed 200 EMA as my first option in a lower time frame (H1/H4) and getting some hard times.
The thing is,Why do we need to set different period on the different time frame?And why are those period must not be the same?This is where i got confused and lost in the middle outta nowhere.
I canât answer you on price chart time-frames Iâm afraid, as I use only the daily chart for assessing trend, swing highs and lows, entry and exit points etc., though I look at weeklies to help confirm trend and get an idea of recent price momentum. Anything under a day to me is just noise and a pointless complication to TA but maybe someone else can help on this, as many people make good money using intra-day time-frame charts.
i agree with you,indeed the weeklies shows âthe big pictureâ but i just getting started with the âfractalsâ method and it looks very informative to me.The point i started to use the MA is just to make a good entry onto a lower time frame which i wanted to learn.
