This time, let's talk about a classic indicator in technical analysis - Moving Averages. They act like a 'thermometer' of the market, helping us judge trends by smoothing out price fluctuations. Below, I will use vivid language and tables to differentiate between SMA, EMA, SMMA, WMA, and VWMA.
📖 What is a moving average?
Moving averages are smooth curves that reflect price trends by calculating the average price over a period of time. They help us filter out random fluctuations and focus on the larger trend.
📋 A figurative analogy
Suppose you are observing the ripples of a lake:
SMA: Like measuring the horizontal line of the lake surface with a ruler, treating big and small waves 'equally'.
EMA: Like watching the latest ripples closely, sharply capturing the newest fluctuations.
SMMA: Like taking a picture of the lake surface with a filter, the image is smooth and stable, but lacks detail.
WMA: Like paying more attention to the recent ripples, but not completely ignoring the distant waves.
VWMA: Like considering both the ripples on the lake surface and the depth of the water at the same time, with volume representing depth.
📌 Which one is the best to use?
There is no 'best moving average', only the 'most suitable moving average'. They are like different tools with specific functions, and the choice depends on your trading style and goals:
Short-term trading: Tends to favor EMA and VWMA.
Steady investment: Prefers SMA, WMA, or SMMA.
Paying attention to volume: Be sure to look at VWMA.
If you are a beginner, it is recommended to start with SMA, also known as MA, and gradually familiarize yourself before trying more advanced moving average indicators!