Description

• EMA is a modified version of the Simple Moving Average. The SMA is a lagging indicator i.e. it only based past data and gives equal weightage to each value
• The EMA is a weighted average. It gives more weight to recent data
• Thus, the EMA is more responsive to recent information than past data. This responsiveness is why many traders chose EMA for their analysis

Interpretation

• The price line moving above the EMA indicates an uptrend suitable for Buy trades
• The price line moving below the EMA indicates an downtrend suitable for Sell trades

Default Parameters Used/Inputs

• Data line- Close line, High line, Open line, Low line or others
• Bars – number of bars for which EMA has to be calculated

Returns/Output

EMA graph line reflecting emphasis of recent market changes

Formula

EMA = [Price(current) – EMA(previous)]K + EMA(previous)
K = 2/(n +1) where n is period i.e. number of bars