EMA (Exponential Moving Average)
Technical IndicatorsQuick Definition
A type of moving average that gives more weight to recent prices, making it more responsive to new information.
Detailed Explanation
The Exponential Moving Average (EMA) is a technical indicator that differs from a Simple Moving Average (SMA) by applying more weight to recent data points. This makes the EMA more sensitive to recent price changes and helps traders identify trends more quickly. The EMA is calculated using a smoothing factor that exponentially decreases the weight of older data. Common EMA periods include 12, 26, 50, and 200 days. The 12 and 26-day EMAs are used in the MACD indicator, while the 50 and 200-day EMAs are popular for identifying long-term trends.
Real Trading Example
A trader might use a 20-day EMA crossing above a 50-day EMA as a bullish signal to enter a long position.