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Independent Study Exponential Moving Averages
Independent Study Exponential Moving Averages
| Exponential Moving Averages |
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As far as explanation go, Wikipedia has the easiest to understand explanation. “An exponential moving average (EMA), sometimes also called an exponentially weighted moving average (EWMA), applies weighting factors which decrease exponentially. The weighting for each older data point decreases exponentially, giving much more importance to recent observations while still not discarding older observations entirely.” How does this differ from a SMA. The best way to explain that is to show you a picture. In the following example, the yellow line is the simple moving average and the green line is the exponential moving average (ema). Notice how much sooner the ema recognizes a turn in price action.  However, just because the ema moves quicker than the sma does not mean it is not a lagging indicator. It still lags behind current price action but is marginally better at identifying a turn in trend. |