Intense

Exponential Moving Average Formula

Exponential Moving Average Formula : Here we apply some rules to SMA interpreting with Exponential Moving Averag Value. Exponential Moving Average is more sensitive to price movement also called a double-edged sword. It helps to identify trends earlier than. EMA will probably experience short-term change than SMA. We Use the EMA to determine trend direction trading in that direction. So when EMA rises we consider buying prices dip near/ below the EMA. And when EMA falls you may sell prices rally towards/above the EMA. They will indicate support and resistance areas. They will reinforce the strategy of buying when the price is near the rising EMA and selling when near the falling EMA. All moving averages include the EMA to identify trade at the exact bottom and top. They will help to trade in a general direction with a delay at the entry and exit points.EMA has a shorter delay than SMA with the same period.

Exponential Moving Average Formula : EMA includes the price data within its current value. The new price data has the most impact on the Moving Average. And the oldest price data have a minimal impact. EMA= (K x(C-P)) +P
Where:
C = Current Price
P = Previous periods EMA
K = Exponential smoothing constant

Three steps to calculate the EMA

Firstly calculate the simple moving average for the initial EMA value. The exponential moving average has to start. The simple moving average is used as the previous period's EMA in the first calculation. Then we calculate the weighting multiplier. And lastly calculate the exponential moving average for each day between the initial EMA value and today as price, multiplier, and previous period's EMA value.

Applications

To highlight and identify price trends is an important function of EMA. The EMA and other moving averages have a function of support and resistance for the price. They will act as the process to fall more prices during uptrend.

Conclusion

EMA is a valuable indicator of trading strategies. It is simple to use by any trader. They follow the best way for novice traders to get a feel for technical analysis in relation to identifying trends and entry prospects. The experienced traders use the EMA in conjunction with other tools.

Simple vs. Exponential Moving Average

The main difference between SMA and EMA is the sensitivity, as it shows to make changes in data used for calculation. The EMA gives higher weights to recent prices, while the SMA gives equal weights to all values. Here two averages are the same because they are interpreted in the same manner. They are commonly used by technical traders to smooth out price fluctuations. EMAs are placed at a higher weighting on recent data than older data. EMA’s are more responsive to the latest price changes than SMAs. Also, make the result from EMAs and explain why they are preferred by traders.