Moving averages are among the most widely used technical indicators in trading. This article evaluates five key types—Simple (SMA), Exponential (EMA), Weighted (WMA), Exponential Weighted (EWMA), and Hull (HMA)—based on 43,770 test trades to determine their effectiveness.
Understanding Moving Averages
What Is a Moving Average?
A moving average smooths price data by creating a constantly updated average over a specified period. It helps traders:
- Identify trend directions (upward/downward).
- Spot support/resistance levels.
- Generate entry/exit signals.
Types of Moving Averages
- Simple Moving Average (SMA): Averages closing prices over a set period.
- Exponential Moving Average (EMA): Prioritizes recent prices for faster response.
- Weighted Moving Average (WMA): Assigns higher weights to recent data.
- Exponential Weighted Moving Average (EWMA): Combines EMA and WMA principles.
- Hull Moving Average (HMA): Reduces lag via weighted calculations.
👉 Compare these averages in real-time charts
Performance Comparison: Test Results
Methodology
- Backtesting Tool: TrendSpider.
- Assets: Dow Jones 30 stocks over 8 years.
- Configurations Tested: 20-day, 50-day, 100-day, and 200-day periods.
Key Findings
| Moving Average | Best Setting | Win Rate | Trades Tested |
|--------------------|------------------|--------------|-------------------|
| Hull (HMA) | 50-day | 27% | 3,450 |
| Simple (SMA) | 20-day | 23% | 4,800 |
| Exponential (EMA) | 20-day | 23% | 5,160 |
| Weighted (WMA) | 100-day | 10% | 2,250 |
Top Performer: The Hull Moving Average (HMA50) delivered the highest win rate (27%).
How to Trade Moving Averages Effectively
Best Practices
- Combine with Other Indicators: Use RSI or MACD to confirm signals.
Timeframe Selection:
- Short-term: 20-day SMA/EMA.
- Long-term: HMA50 or HMA200.
- Golden Cross Strategy: Enter trades when a short-term MA crosses above a long-term MA (e.g., 50-day above 200-day).
👉 Optimize your strategy with advanced tools
Frequently Asked Questions
1. Which moving average is best for day trading?
The 20-day EMA or SMA is ideal for day trading due to its responsiveness.
2. How do I reduce false signals?
Avoid ranging markets by pairing MAs with volatility indicators like Bollinger Bands.
3. Can moving averages predict market reversals?
Yes, watch for divergence between price and MA trends or Death Crosses (50-day below 200-day).
4. What’s the difference between EMA and HMA?
HMA reduces lag significantly, making it better for fast-moving markets.
Conclusion
- For short-term trading: SMA20 or EMA20 (23% win rate).
- For long-term trends: HMA50 (27% win rate).
- Always use MAs with other tools to filter noise and enhance reliability.
Final Tip: Test strategies in a demo environment before live trading.