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Simple vs exponential, what 50 and 200 mean, the truth about crossovers, and the trap of a sideways market
Published by The Retail Trader · AUG 09, 2026 · Features
The moving average is the oldest and most widely used indicator, and the reason is simple: it makes no prediction. It just removes the noise and shows which way price is leaning.
A simple moving average is the average of the closes of the last N periods. An exponential moving average is also an average, but it gives more weight to recent closes — so it reacts faster.
Which is better? Both are fine. The EMA turns quickly, so it gives signals early and is also wrong early. The SMA is slow, so it gives fewer signals but whipsaws less.
The 50-day average shows the medium-term trend, the 200-day the long-term one. Institutional players look at the 200-day as a broad line: above it the character of the market is different, below it another.
These numbers are not sacred. They work because a lot of people watch them — that is, their strength comes from their popularity, not from any mathematics.
When the shorter average moves above the longer one it is called a bullish crossover, the reverse a bearish one. This works well in a trending market.
In a sideways market, the same thing becomes the most expensive: the averages cut each other again and again and every crossover hands you a small loss. This is called a whipsaw, and it is the biggest weakness of a moving average system.
What you can and cannot ask of a moving average:
• You can ask — which way the trend is leaning. Whether price is above or below the average, and whether the average itself is rising or falling.
• You can ask — how strong the trend is. The distance between price and the average and the slope of the average both tell you.
• You cannot ask — where the top and bottom are. A moving average always trails behind; by definition it is lagging.
• You cannot ask — when to enter. A crossover alone is a very crude signal for entry.
On your own chart, count all the crossovers of the last one year and count how many worked. Most people are shocked at how low the number is. This is not to dismiss the indicator — it is to learn how much trust to place in it.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advice. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.