JustChartsMoving Averages Explained: SMA vs EMA and the 50/200 Golden Cross
A moving average is the average closing price over a set number of bars, plotted as a line to show the trend. A simple moving average (SMA) weights every bar equally; an exponential moving average (EMA) gives more weight to recent bars, so it reacts faster. Popular settings are the 20, 50 and 200 periods, and a 50-day crossing above the 200-day is called a golden cross.
Key facts
- SMA
- equal weight to every bar
- EMA
- more weight to recent bars (multiplier 2 ÷ (N + 1))
- Common periods
- 9, 20, 50, 100, 200
- Golden cross
- 50-day crosses above 200-day
- Death cross
- 50-day crosses below 200-day
Simple moving average (SMA)
SMA = (sum of the last N closing prices) ÷ N
A 20-period SMA on a daily chart is the average close of the last 20 days. It is smooth and easy to understand, but slow to react to sudden moves.
Exponential moving average (EMA)
EMA today = (close − EMA yesterday) × 2 ÷ (N + 1) + EMA yesterday
The EMA reacts faster to new prices, which suits short-term traders, but it also gives more false signals in choppy markets.
How traders use moving averages
- Trend direction: price above a rising 200-day average is broadly considered an uptrend.
- Dynamic support and resistance: in trends, price often pulls back to the 20 or 50 average before continuing.
- Crossovers: a fast average crossing a slow one signals a possible trend change.
- Filters: only take long trades when price is above the 200-day average, for example.
Golden cross and death cross
When the 50-day average crosses above the 200-day, it is called a golden cross; crossing below is a death cross. They are widely reported because many investors watch them, but they lag price — by the time they happen, much of the move has often occurred.
Limitations
All moving averages lag, and in sideways markets crossovers produce repeated losing signals. Combine them with price structure and momentum tools such as MACD or RSI.
Frequently asked questions
Which is better, SMA or EMA?
Neither is better overall. EMAs react faster and suit short-term trading; SMAs are smoother and widely used for long-term levels such as the 200-day.
What is the 200-day moving average?
The average closing price over the last 200 trading days. It is widely watched as a dividing line between long-term uptrends and downtrends.
Is a golden cross bullish?
It signals that recent prices are stronger than the long-term trend, but it lags and gives false signals in choppy markets, so it is best used with other evidence.
Put it into practice
Live charts, an economic calendar and trading calculators — free with a JustCharts account.
Add moving averages to a live chartThis article is for education only and is not financial advice. Trading leveraged products carries a high risk of losing money. Contract sizes, trading hours and leverage limits vary by broker and country — always check your own broker’s specifications.