Exponential Moving Average (EMA)

Beginner

What Is an EMA?

An exponential moving average (EMA) is a tool used in technical analysis to track the price movements of an asset over a certain period. Unlike the simple moving average (SMA), the EMA gives more importance to recent price data, making it more responsive to short-term market fluctuations.

This makes the EMA similar to the weighted moving average (WMA), which also gives more weight to recent data points. However, the EMA does so in an exponential manner while the WMA does so in a linear fashion.

How to Calculate an EMA

As mentioned, the EMA gives exponentially more weight to recent price data. You can apply the EMA to different time frames, but to illustrate, we will consider each period as a full trading day. The EMA can be calculated with the following formula:

EMA = ( Closing Price – Previous EMA ) x Multiplier + Previous EMA, where:

The Closing Price is the last traded price of the period (day). So, if you use a daily chart, it is the daily close of the candlestick. If the current day is not closed yet, you can disregard it and use the previous periods instead.
The Previous EMA is the EMA value for the previous period (day).