Exponential Moving Average

Exponential Moving Average

Exponential Moving Average (EMA) In order to reduce the lag in simple moving averages, technicians often use exponential moving averages (also called exponentially weighted moving averages).

exponential moving average reduce the lag by applying more weight to recent prices relative to older prices.

The weighting applied to the most recent price depends on the specified period of the moving average.
The shorter the exponential moving average’s period, the more weight that will be applied to the most recent price.
For example: a 10-period exponential moving average weighs the most recent price 18.18% while a 20-period EMA weighs the most recent price 9.52%. As we will see, the calculating and exponential moving average is much harder than calculating an simple moving average.

The important thing to remember is that the exponential moving average puts more weight on recent prices. And so it will react quicker to recent price changes than a simple moving average.

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