Home
Glossary
EMA (Exponential Moving Average)
Exponential moving average (EMA) is a technical indicator that highlights the recent price changes and data points of an asset/stock/cryptocurrency while keeping the older chart observations
What Is an EMA(Exponential Moving Average)?
Exponential Moving Average (EMA) is atype of moving average (MA) that gives greater importance to the recent price data.Therefore, it is preferred by traders who are looking for recent price changes of an asset.
Unlike other moving averages, the exponential moving average (EMA) behaves quickly when the price of asset changes in the financial market. An EMA line is drawn by using the indicator and is used by traders who want to observe and act on the latest changes in the price of a particular asset/stock/cryptocurrency.
The graph of an exponential moving average (EMA) usually consists of three lines:
Whenever the candles are above the EMA lines, it represents an uptrend or in simple words, abullishsignal. Notice how the yellow line is reacting to the sudden price changes in the chart above? Observe from the left side, how two candles formed above the yellow EMA line and a bullish pattern followed. The price of this asset remained bullish as long as it didn’t come down enough to cross the purple EMA line. However, towards the end of the graph, a large candle went below the purple line and the market continued to fall. This is why EMA is highly rated by traders as it allows them to predict the next price by analyzing recent price patterns of the asset in the financial markets.
Why Is Exponential Moving Average (EMA) Used?
EMA is one of the toptechnical trading indicators that have a reputation for predicting the direction of the market. EMAs are frequently used in combination with other technical indicatorsto confirm and assess important market changes. It is particularly effective for traders who prefer to trade in fast-moving markets. This indicator is frequently used to detect a trading bias.
The calculation of EMA is a bit difficult since an EMA gives the most recent price inputs. Even though both EMA and SMA (Small Moving Averages) contribute significantly, EMA is more sensitive to market reversals and rapid price changes.
What Is the Best Setting for EMA (Exponential Moving Average)?
The ideal settings for Exponential Moving Average (EMA) are the following:
- 8-day and 20-day EMAs are more popular among day traders
- 50-day and 200-day EMAs are used mostly by long-term traders
Exponential Moving Average (EMA) Formula
Here’s how you can calculate the Exponential Moving Average (EMA):
Where EMA = Exponential Moving Average
Smoothing = 2
You can increase the smoothing factor if you want the recent price observations to have a greater influence on the EMA technical indicator.
EMA is not the only technical indicator used by traders when they are analyzing the charts of an asset in the financial markets. Other commonly used indicators (TA’s) include relative strength index (RSI), Moving Average Convergence Divergence (MACD), on-balance volume (OBV indicator), Aroon indicator, and the stochastic oscillator. Every one of these indicators works on a different mechanism where some give more weightage to price, others focus on volume, while some of these consider both variables. While trading it is beneficial to use a variety of indicators before investing in any asset.
To understand how to use technical indicators in stocks and the crypto market, please check our guide on how to use TradingView.
FAQs
Exponential Moving Average (EMA) is a type of moving average (MA) that gives greater importance to the recent price data. Therefore, it is preferred by traders who are looking for recent price changes of an asset.
How do you calculate EMA from exponential moving average? ›
The EMA formula gives more weight to recent prices. It is: EMA = (Closing Price x Smoothing Factor) + (Previous EMA x (1 – Smoothing Factor)).
How do you interpret exponential moving averages? ›
Usually, if the EMA line is above the price of the asset, it is likely to fall next. But, if the price level is above the EMA line, it is an indicator that the value of an asset will continue to increase.
What does 20 EMA crossing 50 EMA mean? ›
A common trading strategy utilizing EMAs is to trade based on the position of a shorter-term EMA in relation to a longer-term EMA. For example, traders are bullish when the 20 EMA crosses above the 50 EMA or remains above the 50 EMA, and only turn bearish if the 20 EMA falls below the 50 EMA.
What is the 5 EMA 10 EMA strategy? ›
The 5 EMA is a short-term moving average that responds more quickly to price changes, while the 10 EMA is a longer-term moving average that is less responsive to price changes. The strategy involves using the crossover of these two moving averages to identify potential trades.
How do you manually calculate EMA? ›
Current EMA= ((Price(current) - previous EMA)) X multiplier) + previous EMA. The important factor is the smoothing constant that = 2/(1+N) where N = the number of days. This means a 10-period EMA weights the most recent price 18.8%, a 20-day EMA 9.52 % and 50-day EMA 3.92% weight on the most recent day.
What is exponentially moving average EMA? ›
Description. Exponential Moving Average (EMA) is similar to Simple Moving Average (SMA), measuring trend direction over a period of time. However, whereas SMA simply calculates an average of price data, EMA applies more weight to data that is more current.
What is a good exponential moving average? ›
Exponential moving averages (EMAs) are designed to see price trends over specific time frames, such as 50 or 200 days. Compared to simple moving averages, EMAs give greater weight to recent (more relevant) data.
What are the best EMA settings? ›
Some typical EMA indicator settings are 10 and 25 for faster, more responsive curves; or 100 and 200 periods for smoother, slow-moving curves. For those who want an EMA indicator somewhere in the middle, a period of 50 might be more appropriate.
What does 200 EMA mean? ›
The 200 EMA, also known as the 200-period Exponential Moving Average, is a widely used technical indicator in forex trading. An EMA is a type of moving average that gives more weight to recent price data, making it more responsive to price changes compared to the Simple Moving Average (SMA).
Bullish Crossover: When the 50 EMA crosses above the 200 EMA, it generates a bullish signal. Traders may consider this a potential entry point for long positions, indicating a shift to an uptrend. Bearish Crossover: When the 50 EMA crosses below the 200 EMA, it creates a bearish signal.
How to read EMA 20 50 100 200? ›
If the 20-EMA crosses below the 50-EMA while the 50-EMA is ABOVE the 200-EMA, the trend change is neutral because technically, if the 50-EMA is above the 200-EMA, it implies the longer-term trend is bullish or in a bull market - thus, “neutral” is more appropriate than “sell.”
What happens when 200 EMA crosses 100 EMA? ›
If a smaller period EMA crosses longer period EMA from above, it means bearish reversal may take place and if a smaller period EMA from below like the 100 EMA Crossing 200 EMA from Below scan, it means bullish reversal may take place.
What is the 5 8 13 EMA strategy? ›
The 5-8-13 EMA combination is a highly valuable tool for day traders navigating the volatility of the markets. This trio, emphasizing recent prices, helps in distinguishing significant market moves from irrelevant noise, which can help you make clearer and more informed trading decisions.
What is the 8 13 21 EMA strategy? ›
The 8, 13, 21 EMA strategy involves using three exponential moving averages (EMAs) set at periods of 8, 13, and 21. This strategy helps traders identify trends and potential entry and exit points in intraday trading based on the crossover and positioning of these EMAs.
What is the 9 30 EMA strategy? ›
9/30 EMA Trading Strategy
Mike Burns developed the 9-30 trading strategy. It involves deploying two moving averages to catch trend continuations. The first is the 9-period Exponential Moving Average (EMA), and the second is the 30-period Weighted Moving Average (WMA).
What is the formula for calculating EMA? ›
For instance, in the case of a 20-day moving average, the multiplier is computed as [2/ (20+1)] = 0.0952. Computation of the Current EMA: Ultimately, the current EMA is calculated using the subsequent formula: EMA = (Closing price x multiplier) + [EMA (from the previous day) x (1 - multiplier)]
How do you calculate EMA indicator? ›
EMA indicator explained
To calculate the EMA, traders first determine the initial SMA for a specified period, which is then used as the basis for subsequent calculations. The EMA formula takes the previous day's EMA, multiplies it by a smoothing factor, and adds the result to the current day's price data.
What is 5 day exponential moving average ema crossover? ›
The 5-day EMA crossover strategy is a short-term trading approach that focuses on the crossover of the 5-day EMA with another EMA, such as the 20-day EMA or the 50-day EMA. This strategy aims to capture rapid price changes and capitalize on short-term market trends.
What is the 21 EMA strategy? ›
The 21-day exponential moving average (EMA) can be a powerful tool for investors. Though it is most powerful in a bull market, it has plenty of use during bear markets as well. Like the commonly used 50-day moving average, the 21-day takes the closing prices of the past 21 sessions and averages them out.
