The idea is essentially similar to the SMA, but more weight is given to the most recent data, according to Investopedia.
The difference between the two is that the EMA is consistently closer to the actual price. The EMA is also quicker to notice a trend, since it reacts more quickly than the SMA.
Which moving average you use depends on your personal preference as well as your investing style.
Some prefer the EMA for shorter time periods so they can identify trends more quickly. Others like the SMA to track trends over long time periods. Which moving average you use is also dependent on the security you’re tracking and how it has reacted to changes in the past.
Stock Charts suggests trying both types of trend lines and see what works for you. Just be aware that choosing a short time frame for your moving average or a more sensitive indicator will generate more buy and sell signals.
Our investing strategy is to stick to the 200-day EMA to help us identify trends so we know when to be in and when it’s time to get back out.