The 200-day EMA is quicker to react to the most recent price changes in indexes such as the S&P 500, which is not surprising since the exponential moving average has a smaller lag time, or more responsive, compared to the the simple moving average.
However, the SMA is a true indicator for the average prices over a specific time period. Consequently, most technical analysts would monitor the SMA in identifying support or resistance levels. [What a ‘Golden Cross’ Means for Stock ETFs]
Moving average preferences typically depends on an investors time horizons and objectives. We like to use the 200-day EMA to identify strong long-term trends and momentum in an investment. The 200-day EMA helps us determine when we are in or out of an investment. [How to Use ETFs in a Trend-Following Strategy]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.