We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
Oil - US Crude
Mixed
Wall Street
Bullish
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Mixed
USD/JPY
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • Are recent gains in the Indian Rupee and Nifty 50 warranted? Risks are brewing in the background, leaving USD/INR in a consolidative setting as the Nifty pressures resistance. Get your $USDINR market update from @ddubrovskyFX here:https://t.co/svDaSdprvN https://t.co/kgddX1ZHe4
  • I approve of this dry humor. https://t.co/b42GmIZDlL
  • The US Dollar may be at risk to losses against some of its #ASEAN counterparts. USD/SGD, USD/PHP, USD/MYR and USD/IDR have recently broken to the downside. Will losses continue? Find out from @ddubrovskyFX here: https://t.co/0RTlj6maTT https://t.co/59cdbPc4l7
  • The #Nikkei 225 trades at 4-month highs after a 50% surge from the March low, while the RSI registers its first overbought readings since November 2019. Get your market update from @DanielGMoss here: https://t.co/pOEt698Ooi https://t.co/EHD2EHmQLW
  • The British Pound technical outlook still seems to favor the downside. GBP/CAD may pressure key rising support from August as GBP/AUD could prolong its downtrend. GBP/CHF may fall. Get your $GBP market update from @ddubrovskyFX here: https://t.co/hBOpDKXmfW https://t.co/8gGfGuw87o
  • The $USD breakdown has taken the index into confluence support at the objective yearly open. Get your USD technical analysis from @MBForex here: https://t.co/A16XEv6n4d https://t.co/VFxFMFWJ5L
  • Texas virus cases increase 2.4%, above 7-day average of 2.3% - BBG
  • Forex Update: As of 20:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.68% 🇨🇦CAD: 0.58% 🇬🇧GBP: 0.56% 🇪🇺EUR: -0.40% 🇯🇵JPY: -0.41% 🇨🇭CHF: -0.71% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/KqzhTKmnaK
  • The divergence between weekly gains in the #Fed balance sheet and with the #SP500 continues to grow https://t.co/A7HQRtukwj
  • Commodities Update: As of 20:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: -1.11% Silver: -1.74% Gold: -1.78% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/oiiAzDSusO
Exponential Moving Average (EMA) Defined and Explained

Exponential Moving Average (EMA) Defined and Explained

2019-07-29 15:30:00
Warren Venketas, Markets Writer
Share:

Exponential Moving Average – Talking Points:

  • What is Exponential Moving Average (EMA)?
  • How is the Exponential Moving Average (EMA) calculated?
  • How do you use the EMA in your trading strategy?
  • Exponential Moving Average: A Summary
  • Become a better trader with our trading tips

What is Exponential Moving Average (EMA)?

The exponential moving average (EMA) is a derivative of the simple moving average (SMA) technical indicator. Compared to the SMA, the EMA weighs recent price changes more heavily than later changes in price. This means that the EMA is more responsive than the SMA to current price fluctuations.

The chart below represents the difference between the SMA and EMA. The 200-EMA is seen reacting earlier to the highlighted decline in price on the left side of the chart. The same is seen with an increase in price emphasizing the variance in lag.

GBP/USD exponential moving average

How is the Exponential Moving Average (EMA) Calculated?

Nearly all charting packages perform this calculation on the respective platforms and apply the calculation to the chart. For the numbers people, the formula will be shared below, but the important thing to remember is that EMA will react quicker to price trends relative to SMA.

The exponential moving average (EMA) is a weighted moving average calculated by taking the average price for a particular market over a defined period of time and adjusting this figure to increase the weight of recent price data. The formula below breaks down the components of the calculation making it easy to visualize and compute.

exponential moving average (EMA) formula

How do you use the Exponential Moving Average in your trading strategy?

The EMA trading strategy can be used in the same manner as the SMA. When the shorter term EMA crosses above the longer term EMA, this signals a buy signal. When the shorter term EMA crosses below the longer term EMA, traders look to enter short positions. The EMA values are completely up to the trader’s preferences. The example below uses 20, 50 and 200 EMA designations, while other traders favour Fibonacci figures.

trading with the EMA indicator

The chart above depicts a USD/CAD daily chart with the 20, 50 and 200 EMA indicator added. The 200 EMA is used to identify the overall long-term trend. In this case price is above the 200 EMA from 2014 to mid-2017 (upward trend), after which the price crosses through representing no clear trend. Thereafter price resumes its trajectory above the 200 EMA confirming the upward trend. Once the trend is confirmed, traders utilise the shorter term EMA’s to identify possible entry points. Highlighted above shows a probable entry point indicating a ‘buy’ signal. The circle represents a ‘buy’ opportunity with the 20 EMA crossing above the 50 EMA line.

Exponential Moving Average: A Summary

The EMA is valuable indicator to have as a trader. This indicator is simple to use and a great way for novice traders to get a feel for technical analysis in relation to identifying trends and entry prospects. More experienced traders tend to use the EMA in conjunction with other tools, but this makes it no less influential.

Steps to follow when trading with the EMA:

  1. Use long-term EMA to identify general trend
  2. Identify crossing points between shorter term EMA’s and longer term EMA’s
  3. Look to enter ‘long’ or ‘short’ positions accordingly

Become a Better Trader with Our Trading Tips

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.