Hey everyone! Ross Here for more You're trading in this video. I'm going to talk about the difference between a simple moving average and an exponential moving average. For those of you that don't understand moving averages, moving averages are the average price of a stock over a fixed period of time. So fixed period means most people will look at moving averages either as a 10 moving average, 20 moving average, a 50 moving average, a 100, or a very popular one is the 200 moving average.

So the 200 moving average when it's applied to a daily chart is the average price of the stock over the last 200 candles. That's when you're using a simple 200 moving average. It's simply the average price over the last 200 candles. Now in this case here, we'll look at the Sp500 on my Lightspeed trading platform.

I'm gonna go chart parameters: I'm gonna go to studies and I'm gonna add a simple moving average right here I'm gonna click Add and what you're gonna see is I've got two moving averages on this chart that are both 200. This yellow line is the 200 simple moving average. This is the 200 exponential moving average so their prices are slightly different. Well, what you'll notice is that the exponential moving average.

It weights more recent price action more heavily. So when a stock starts to move up, the exponential moves faster. When a stock drops, the exponential moves faster. Because this more recent price action is weighted more heavily than the price action that was back here.

Remember that it's a 200 period average. so it's looking at the average, price over the last 200 candles, but waiting more recent price action more heavily. Most active traders like using exponential moving averages because they're a little bit more faster to respond to changes in price. Now, one of the things that's important to note is that a 200 moving average, whether it's exponential or simple on a daily chart, is not the same price as a 200 moving average on a five-minute chart.

So let me show you, let's go here to chart parameters again. we're gonna change this timeframe from daily down to 5 minutes. All right, and what you'll notice is that suddenly our prices have changed. We'll go back to the daily.

Let's mark the prices. The prices of the exponential are 270 and the simple is 274. Now let's go back to the five-minute sharp. All of a sudden, the prices are 246 and 247.

That's because the average price of the last 200 candles on the 5-minute time frame is different than the average price is the last 200 candles on a daily timeframe. So moving averages are always based on the time frame you're looking at. And that's why it's important to use time frames that are commonly used by other traders, so you know you're looking at the same thing other traders are looking at. Traders commonly use daily time frames, 15-minute time frames, five-minute time frames, and even one-minute time frames for fast-moving day trades.

So one of the moving averages that I always use is the 200 and the others are the 20 moving average and the 9 moving average. These are time frames. These are moving averages that I use on my five-minute time frames because as a day trader, these provide sort of intraday levels of support and resistance. and you'll notice that different stocks respond to moving averages differently.

You can see here on Facebook that this pulled back down to the 20 moving average here this blue line and then it squeezed back up. It pulled back to the 20 and it squeezed back up. and then when it got below the 20, it came back to the 20 but couldn't get back above it. So a significant place to watch here would be moving average cross overs when it crosses above the 20.

That's significant when it crosses and closes below the 20. as it did here. that's significant. So some trainers will use moving Average crossovers as part of their strategy development or as part of confirming the strength or weakness of a stock.

I Generally use it just as a overall indicator of strength, maybe to help me confirm what I already suspect in a stock. Alright, so I Hope this video has helped you understand the difference between exponential and simple moving averages. And as usual, if you have any questions, don't hesitate to reach out if you're still watching. You must have really enjoyed that video.

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