Exponential Moving Average (EMA)
1 min read
The other sort of moving average is that the exponential moving average (EMA), which provides more weight to the foremost recent price points to form it more aware of recent data points. An exponential moving average tends to be more aware of recent price changes, as compared to the straightforward moving average which applies equal weight to all or any price changes in the given period.
When calculating the exponential moving average, the following three steps are used:
1. Calculate the straightforward moving average for the amount:
The EMA must start somewhere, and therefore the simple moving average is employed because the previous period’s EMA. It is obtained by taking the sum of the security’s closing prices for the amount in question and dividing the entire by the amount of periods.
2. Calculate the multiplier for weighting the exponential moving average:
The formula for calculating the multiplier is as follows:
Multiplier = [2 / (Selected period of time + 1)]
3. The last step is to calculate the present exponential moving average:
The last step calculates the present EMA by taking the amount from the initial EMA until the foremost recent period of time , using the worth, multiplier, and therefore the previous period’s EMA value. It is computed using the following formula:
Current EMA = [Closing Price – EMA (Previous Time Period)] x Multiplier + EMA (Previous Time Period)
