In this article, We learn about "Exponential Moving Average (EMA)".Let's Go!
Exponential Moving Average (EMA) is a type of Moving Average (MA) that gives more weight and importance to the latest price.
Exponential Moving Average (EMA) is also known as Exponentially Weighted Moving Average (EWMA).
Exponential Moving Average (EMA) is similar to Simple Moving Average (SMA) in that it measures trend direction over time.
moving averages can also indicate support and resistance areas .
- A rising EMA tends to provide support for price action
- A descending EMA tends to provide resistance to price action.
This reinforces the strategy of buying when the price is close to the rising EMA and selling when the price is close to the falling EMA.
Like all moving average indicators, the exponential moving average is suitable for trending markets.
- When the price is in a strong and sustained upward trend, the EMA line will also trend upward.
- When the price is in a strong and sustained downward trend, the EMA line will also trend downward.
- You should pay attention to the slope (direction) of the EMA line and the momentum (rate of change) of the EMA line from one candle to the next.
Moving averages, including EMA, are not designed to determine the exact top and bottom of a trend.
Moving averages help you trade in the general direction of the trend, but there is a delay in triggering entry and exit points.
The EMA has a shorter delay than the SMA using the same period .
How to calculate EMA
Note how EMA uses previous values of EMA in its calculations. This means that the EMA contains all price data within its current value.
The latest price data has the greatest influence on the EMA, and the oldest price data has the least influence.
EMA = (K x (C - P)) + P
C = current price P = EMA of the previous period K = exponential smoothing constant
smoothing constant K applies an appropriate weight to the latest price.
It uses the period specified in the moving average.