Exponential Moving Average

Exponential Moving Average (EMA) is a technical indicator used in trading to follow price trends over a specified time period. Unlike the Simple Moving Average (SMA), which treats all prices equally, the EMA gives more weight to recent prices, making it more responsive to price changes. The formula to calculate the EMA is: Exponential Moving Average (EMA) = (K x (CP - PP)) + PP. Where: - C = Current price of the asset (stock, currency, commodity, etc.). - P = EMA of the preceding period. - K = Exponential smoothing constant, typically calculated as ( K = rac{2}{n + 1} ), where n is the number of periods. In practice, the first period’s EMA is usually calculated using the Simple Moving Average (SMA). The EMA can help identify trends, as well as support and resistance levels. However, it may not be the best tool for pinpointing exact entry and exit points due to its smoothing nature.