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Exponential moving average

A moving average that weights recent prices more heavily, reacting faster than a simple average but at the cost of more false turns.

A simple and an exponential moving average over the same pricesOne price line with two smoothed lines drawn through it; the exponential average bends away from the simple average as soon as price turns, and sits between price and the simple average all the way down.SAME PRICES, TWO AVERAGES (8 PERIODS)the EMA turns down firstand stays nearer to price8-day SMA8-day EMApriceIllustrative prices. Both averages smooth the same series over the same span.
Simple versus exponential averages. Both lines average the last eight prices, but the exponential version gives the newest prices the most weight while the simple version treats them all alike. That is why the exponential line bends first when price turns and then tracks it more closely.

Each new value is a blend of the current price and the previous average, controlled by a smoothing factor derived from the period. Older data never fully drops out; it just decays, which makes the line smoother in transition than a simple-moving-average.

Because it responds faster, an EMA is common in shorter-term systems and in indicators built on it such as macd. The 9, 21 and 50 period EMAs are the usual intraday choices.

Faster is not better. Reducing lag increases sensitivity to noise, so an EMA system produces more signals and more whipsaw in a trading-range. The choice between SMA and EMA is a trade between being late and being wrong more often, and neither setting eliminates the underlying problem.

Related: simple-moving-average, hull-moving-average, macd, indicator-lag, whipsaw

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