Exponential Moving Average (EMA)
An EMA gives more weight to recent prices, so it turns faster than an SMA.
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Text version · Trend Indicators, lesson 2: “Exponential Moving Average (EMA)”
An EMA gives more weight to recent prices, so it turns faster than an SMA.
The newer the price, the bigger its say
EMA gives the latest candle the most weight, and older candles less and less, but never zero; SMA treats every candle in the window equally.
Faster, and easier to fool
With the same period, the EMA turns faster and signals earlier. But sensitivity cuts both ways: everyday wiggles also make it turn often.
Common EMAs
EMA12 and EMA26 are the ingredients of MACD; EMA20 is commonly used for the short-term trend, EMA50 and EMA200 for the medium and long term. It's faster than the SMA but still lags, just a bit less.
Key takeaways
- The newest candle in an EMA gets a weight of 2 ÷ (N + 1). Older candles get less weight but never zero, so it reacts faster than an SMA of the same period.
- More sensitive means earlier signals, but also more easily fooled by noise. An EMA still lags.
- Common choices: EMA12 / EMA26 (the basis of MACD), EMA20, EMA50, EMA200.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Choose "Sudden jump," period 20, and press play: which catches up to half the jump first, EMA20 or SMA20? How many bars did each take?
- Drag the period to 19: what are "Latest bar weight · EMA" and "· SMA"? Then drag to 5 and to 40 and watch how the amber bars in the weight chart below change.
- Switch to "Noisy range": with the same period, how many times did the EMA and the SMA each turn? What weakness of the EMA does that show?
- Hover over the candles after the jump and see which line is closer to price.
Quiz and explanations
- 1. The price suddenly jumps. Which line catches up first?
- Answer: EMA20.The EMA gives the latest price more weight.
- 2. What's the downside of an EMA?
- Answer: It's more easily swayed by short-term noise.Sensitivity cuts both ways.
- 3. With the EMA period set to 19, what weight does the newest candle get in the average?
- Answer: 10%.2 ÷ (19 + 1) = 10%. In an SMA of the same period, each candle is only 1 ÷ 19 ≈ 5.3%.
Terms in this lesson
- EMA: A moving average that gives recent prices more weight, so it reacts faster than an SMA.
- false signal (False Signal): An indicator gives a signal, but price doesn't move the way it suggested.
- lag (Lag): Because indicators are built from past prices, their signals always come after the actual turn in price.
- MACD: An indicator that measures trend and momentum using the gap between EMA12 and EMA26 (the MACD line) and its signal line.
- SMA: The simple average of the last N closes, drawn as a smooth line.