Indicators · 6 min read
Moving averages
A moving average replaces the zig-zag of closing prices with a smooth line. That smoothness is both its value and its cost.
Three recipes
The simple moving average (SMA) weights every close in the window equally. The exponential moving average (EMA) gives recent closes more weight, decaying smoothly into the past. The weighted moving average (WMA) uses weights that fall in a straight line from newest to oldest. The indicator reference has the formulas.
For the same length, the EMA and WMA hug price more closely than the SMA. None is “better”; they trade responsiveness for stability.
Live chart · Binance spot data. Drag to pan.
Lag is unavoidable
An average of past prices can only change after prices have changed. A 50-period SMA on a 4h chart is, roughly speaking, centred on prices from four days ago. Any turn it shows has already happened.
This makes averages useful for describing the backdrop — is price mostly above or below its average? Is the average rising or falling? — and weak for timing anything.
Choosing a length
Short lengths (10–20) follow recent swings; long lengths (100–200) describe the larger trend. There is nothing special about popular numbers except that many people watch them. Pick lengths that match the period you are trying to describe and keep them consistent.
Two averages together
Pairing a fast and a slow average shows whether recent prices are running ahead of or behind the longer trend. When they cross, the relationship has flipped — but by construction the cross comes late, and in sideways markets they cross back and forth repeatedly.
See the moving average context study for a worked example, and experiment with lengths in the chart via the indicator settings.
Velqorena articles explain how tools work using past price data. They are not investment advice and do not suggest any trade.