What Is an EMA (Exponential Moving Average)?

Exponential Moving Average (EMA) is a type of moving average (MA) that gives greater importance to the recent price data. Therefore, it is preferred by traders who are looking for recent price changes of an asset.

Unlike other moving averages, the exponential moving average (EMA) behaves quickly when the price of asset changes in the financial market. An EMA line is drawn by using the indicator and is used by traders who want to observe and act on the latest changes in the price of a particular asset/stock/cryptocurrency.

The graph of an exponential moving average (EMA) usually consists of three lines:

Where EMA = Exponential Moving Average

Smoothing = 2

You can increase the smoothing factor if you want the recent price observations to have a greater influence on the EMA technical indicator.

EMA is not the only technical indicator used by traders when they are analyzing the charts of an asset in the financial markets. Other commonly used indicators (TA’s) include relative strength index (RSI), Moving Average Convergence Divergence (MACD), on-balance volume (OBV indicator), Aroon indicator, and the stochastic oscillator. Every one of these indicators works on a different mechanism where some give more weightage to price, others focus on volume, while some of these consider both variables. While trading it is beneficial to use a variety of indicators before investing in any asset.

To understand how to use technical indicators in stocks and the crypto market, please check our guide on how to use TradingView.