Visual Depiction of SMA vs EMA Weighting
The graph below shows how each day is weighted in a 10-day simple moving average (grey) versus exponential moving average (red). For the uninitiated, the SMA and EMA are the two types of moving averages most commonly employed by traders.
In the 10-day SMA, each day from 0 (the most recent) to 9 (the most distant) is equally weighted (10%).
In the EMA, day 0 makes up 18.2% of the average. That falls to just 3.0% by day 9. The left tail on the graph (day 20 and beyond) extends indefinitely, but in total makes up just 1.8% of the average.
The next graph show the daily weighting for a 50-day SMA/EMA, and the graph below that compares a 10-day EMA to a 50-day EMA.
For those familiar with how these averages are calculated, none of this is new information, but I thought it was interesting to see it visually.
For me personally it’s a reminder of how arbitrary an SMA is, weighting the very last day in the average equally with the most recent day, and how much of an impact it can have when that last day falls out of the average despite not telling you much about what’s going on today.
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