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Simple vs. Exponential Moving Averages

Moving averages is one of the most useful tools in understanding the trend reversal in the forex
market. But people most often wonder which is better and more reliable. Let’s start with
exponential moving averages first.
Exponential Moving Average
Short period EMA or exponential moving average is the best choice if you want a moving averagethat reacts to price movement quickly. This will help you identify trends in its early days which can
mean that you can ride them longer for higher profits. But the downside is that during consolidation,
you can get faked out by the trends. This is because even a small amount of price movement can
fake a trend.Simple Moving Average
The exact opposite of Exponential moving average is a simple moving average where you should
consider a more extended period of data points. The graphs are much smoother here since they are
based on more extended time periods. They can give you an overview of the trend, and the chances
of getting faked here are lesser too. The effect of the price movement is low here since the
numerous data points available. But the downside is that you can miss out on a great deal altogether
while waiting to accumulate enough data.
Which is better?
This part is for you to choose based on how high your risk tolerance is as well as which one suits you
better. If you are looking to make a deal for a longer period, a SMA would be better but if it is the
quick buck you are after, try the EMA.

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