Moving averages smooth price data to reduce noise and make trends more visible. They are lagging indicators — they tell you what has happened, not what will happen — but they remain one of the most widely-used reference points in technical analysis precisely because they are simple and widely watched.
Simple Moving Average (SMA)
A 20-day SMA adds the closing prices of the last 20 days and divides by 20. Each day's price has equal weight. The 20-day, 50-day, and 200-day SMAs are the most commonly cited.
The 200-day SMA is a key level for longer-term traders. A price crossing above the 200-day SMA is often called a "golden cross" when accompanied by the 50-day SMA also crossing above. The opposite — 50-day crossing below 200-day — is a "death cross."
These terms are dramatic. The reality is more nuanced: crosses are lagging signals that confirm a trend has already developed.
Exponential Moving Average (EMA)
An EMA also calculates an average, but applies exponentially greater weight to more recent prices. A 20-period EMA gives the most recent candle roughly twice the influence of one from 10 periods ago.
The result: EMAs react faster to price changes. A sharp rally makes the EMA rise more quickly than the SMA.
The 12-period and 26-period EMAs are the building blocks of MACD, which is why MACD is particularly sensitive to recent price action.
Which one should you use?
In volatile crypto markets, EMAs are often preferred because they reduce the lag between a real trend change and the indicator reflecting it. However, that speed comes at a cost: more false signals in choppy sideways markets.
For long-term trend direction and support/resistance levels watched by many traders, the 200-day and 50-day SMAs are more useful because more participants reference them. For momentum signals that adapt quickly, 9-period or 21-period EMAs are more responsive.
The Coinblockers scoring model
We use both. The technical factor includes price position relative to the 20-day and 50-day SMAs. We deliberately use SMAs rather than EMAs here because the SMA-based signal tends to fire less frequently but with higher accuracy on the liquid assets we track.
A common mistake
Treating a moving average as a support or resistance line that will hold. Moving averages describe averages of past prices. When price approaches a frequently-referenced MA (like the 200-day), it often stalls or bounces not because of any mechanical reason but because many traders place orders there. Remove enough participants and the "support" disappears.