Let us first summarize the exponential moving average. When choosing a moving average that can react quickly to price changes and trends, then the exponential moving average is the one to choose. Act fast in finding a trend and you act fast in making money.
A drawback to the EMA is it has a tendency to be a bit choppy compared to the SMA. Then, because of the choppy nature of the EMA, you may become faked out by false positives in the moving average. That is, the EMA could appear to be showing an upward trend beginning to form, when all that is really happened was a random spike in the stock’s price.
Your other option the simple moving average has the opposite problem. That is, the smoother SMA has a tendency to be a bit slower to respond to price movement and trends. While the SMA is slower to respond to the current market conditions of a stock, it guard you the trader from being faked out by a price spike. Then again, if you are too slow to respond to a trend, you may miss out on making money.
SMA Pros and Cons
Pros: Smoother moving average line, guard you from fake outs.
Cons: May not signal a trend as fast as the EMA, slower moving.
EMA Pros and Cons
Pros: Quick to react to price trends, reacts well to price jumps.
Cons: Greater susceptibility to fake outs, showing a trend when one does not really exists.
Which one should you choose? I would say both. Learn their unique strengths and plot charts with both an EMA and a SMA. One for a feel for what is happening right now with a stock’s trend (EMA) and one for a longer overall stock movement (SMA).