Exponential Moving Average
Type
Trend indicator
Short introduction
The Exponential Moving Average ("EMA") is an extension of the weighted moving average. Not only does it rule out the criticism that all price data is weighted equally (as is the case with the Simple Moving Average), it also takes into account all available price data. This means that prices outside the selected parameter no longer fall outside the calculation.
Statement
The EMA uses a smoothing technique which adds a part of the previous Moving Average to a part of the current price.
The EMA is superior to the simple MA in its reactivity. Compared to the weighted MA, the EMA cannot be said to have a general advantage in terms of reactivity. Rather, these two moving average lines alternate in their responsiveness.
Formula/calculation
EMAt = EMAt-1 + (SF × (Ct - EMAt-1))
where:
EMAt = Current value of the exponential MA
SF = scoring factor (most common scoring factor): 2 ÷ (n + 1))
Interpretation
The EMA is helpful in confirming trends, but can also help to find a possible sale signal. As with all gliding averages, however, an EMA reacts with a delay. It uses past numbers which means that the price is always in motion before the EMA starts.
Default setting
- MA period: 50 periods
Example: Exponential Moving Average
