What is EMA?

Exponential Moving Average (EMA)

EMA stands for Exponential Moving Average. It's a type of moving average (MA) that places a greater weight and significance on the most recent data points.

Key Differences from Simple Moving Average (SMA)

Unlike a Simple Moving Average (SMA) which gives equal weight to all data points within a specified period, the EMA assigns more weight to recent prices. This makes the EMA more responsive to price changes than the SMA.

How EMA is Used

* Identifying Trends: EMA can help identify the overall trend of a security's price.

* Generating Trading Signals: Traders often use EMA crossovers (when one EMA crosses another) as potential buy or sell signals.

* Determining Support and Resistance: EMA levels can act as support or resistance levels.

Advantages of EMA

* More Responsive to Price Changes: EMA reacts faster to price movements than SMA.

* Smoother Line: EMA tends to produce a smoother line than SMA.