Cryptocurrency as well as stock traders have access to an arsenal of be speakers to sharpen their experience, but there is one in particular that outperforms most. It is known as the Exponential Moving Average, or EMA, in short. The Exponential Moving Average, kindred to the Simple Moving Average (SMA), is a technical be speaker used to quantify trend in price changes of an asset or, in this case, a cryptocurrency over a period of time. Trading With Exponential Moving Averages
Cryptocurrency as well as stock traders have access to an arsenal of be speakers to sharpen their experience, but there is one in particular that outperforms most. It is know as the Exponential Moving Average, or EMA, in short.
Trading With Exponential Moving Averages
The Exponential Moving Average, kindred to the Simple Moving Average (SMA), is a technical be speaker used to quantify trend in price changes of an asset or, in this case, a cryptocurrency over a period of time. However, while a SMA only calculates the average of an asset’s closing prices during a duration, an EMA places more weight on the most recent price forms of kineticism.
For example, if we optate to calculate the SMA of an asset for the past 20 days, we simply take the sum of closing prices in that period and divide it by 20.
To calculate the Exponential Moving Average of the same asset, there are a few extra steps. Trading With Exponential Moving Averages
Calculate Exponential Moving Averages
There is a simple equation for calculating EMA, though you will find many different expressions of the same method.
EMA cares more about the number of visual examinations rather than the duration, so to calculate a 20-day EMA, we’ll first need the Simple Moving Average of those 20 days. We will say this digit the first EMA since it’s the 21st day of the month.
This is withal kenned as the smoothing factor. The typical formula for this multiplier is 2 ÷ (# of visual examinations +1). For this:
2 ÷ (20+1) = 0.0952 or 9.52%.
Since EMA is super sensitive to price forms of kineticism, the more minute the duration, the more preponderant the weight.
2 ÷ (10+1) = 0.181818 or 18.18%, which is virtually twice as much as the 20-day period. Trading With Exponential Moving Averages
Applications of Exponential Moving Average
Since an EMA reacts more expeditious to price changes. It can avail traders identify moving trends earlier than a Simple Moving Average would.
From the chart above, you can optically discern how the EMA line follows proximately to the price forms of kineticism. Dipping and ascending afore the SMA could adjust.
Traders use EMA to determine trend direction and evaluate buying/selling decisions. Keep in mind that this designator is most efficacious for trending markets and not to be misinterpreted as assiduous performance of an asset.
Exponential Moving Average can withal identify support and resistance levels of prices. Trading With Exponential Moving Averages
Support, additionally kenned as floor, is the lowest prices are expected to fall during an uptrend. Resistance, often referred to as ceiling, determines how high prices are expected to ascend during an uptrend.
Exponential Moving Average is a serviceable implement for traders who rely on technical analysis during a trending market. However, putting more weight on recent data can engender a partialness, which is something traders incline to evade.
Withal keep in mind that EMA is utilized to identify trends and not to presage future prices. It simply establishes a direction of an asset predicated on historical data. While many decisions utilize past data, an immensely colossal part of it fell on edified presage and an updated understanding of current genuine world events impacting an asset.