Exponetial Moving Average

Exponential MovingAverage

An Exponential Moving Average is similar to a Simple MovingAverage. An EMA is calculated by applying a small percentage of the currentvalue to the previous value. An EMA applies more weight to recent values. AMoving Average is most often used to average values for a smootherrepresentation of the underlying price or indicator.

Exponential MovingAverage reduces the lag by applying more weight to recent prices relative toolder prices. The weighting applied to the most recent prices depends on thespecified period of the moving average. The important thing is that theexponential moving average puts more weight on recent prices. It will reactquicker to recent price changes than a simple moving average.

It smoothes a data series and makes it easier to spottrends, something that is especially helpful in volatile markets. Movingaverages are lagging indicators, and therefore, by definition, will give latesignals. By weighting recent price data more heavily, exponential movingaverages attempt to speed up the signal given.It provides support andresistance.