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
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
Gold
Bullish
Oil - US Crude
Bearish
Bitcoin
Bearish
More View more
Real Time News
  • $AUDJPY technical positioning hints prices may be on cusp of turning lower after a late-2019 bounce, recoupling with a dovish RBA policy outlook. Get your market update from @IlyaSpivak here: https://t.co/z84Y0V0ZtH https://t.co/wcIGO1emDw
  • The Japanese Yen has faded into 2020 as market risk appetite has held up and hit demand for haven assets. $USDJPY now challenges a key medium-term downtrend, but hasn’t topped it yet.Get your market update from @DavidCottleFX here:https://t.co/4X6vgCgkB7 https://t.co/FfCkGhtHsm
  • The $USD may fall against the Swedish Krona and Norwegian Krone if commentary from officials at the Davos forum uplift market mood and pressure haven-linked currencies. Get your market update from @ZabelinDimitri here:https://t.co/SZAG0yMu3d https://t.co/cBZj5tC0Ny
  • The $NZD is inching toward support guiding gains in the fourth quarter of 2019. A break may set the stage for long-term bearish trend resumption. Get your market update from @IlyaSpivak here:https://t.co/bnlx4RJ8oV https://t.co/d60YziMYnO
  • $Gld prices are poised to mark the highest weekly-close in nearly seven-years, but the bulls aren’t in the clear yet. Here are the XAU/USD levels that matter next week. Get your $XAUUSD technical analysis from @MBForex here: https://t.co/yeTH6HwncQ https://t.co/6sIpxTSNaX
  • Video https://t.co/PZeqhLumSR
  • The $USD rose as the Singapore Dollar, Malaysian Ringgit and Philippine Peso fell on coronavirus fears. What is the technical outlook for USD/IDR, USD/SGD, USD/MYR and USD/PHP? Find out from @ddubrovskyFX here: https://t.co/G3GmyOe4IT https://t.co/iq7ajeP6iv
  • RT @ddubrovskyFX: The Indian Rupee 2020 outlook is bearish as India faces stagflation risk amid rising onion and crude oil prices. USD/INR…
  • Bloomberg just reported that Australia confirmed its first #coronavirus case
  • Monday open volatility? https://t.co/0ElZtSfHsz
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.