An average that leans on the latest price:the newer the data, the bigger its slice.
A type of moving average that gives more weight to recent prices, making it more responsive to new information than a simple moving average.
Commonly used periods include 9, 21, 50, and 200.
In plain words
A moving average smooths a series of prices by averaging the most recent ones. An exponential moving average, or EMA, gives the newest prices the greatest weight, with the weight fading for older ones, so it turns sooner than a simple moving average, which weights every price equally.
See it move
EMA has crossed above Simple average
Why it matters
Because it reacts faster, an EMA follows the price more closely, at the cost of reacting to more short-lived moves. It is also a building block of other indicators, such as MACD.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
For a 9-period EMA the weighting factor is 2 ÷ (9 + 1) = 0.2; the previous EMA is 1.1000 and the new close is 1.1050 (invented figures).
- 1EMA = previous EMA + 0.2 × (close − previous EMA)
- 2= 1.1000 + 0.2 × (1.1050 − 1.1000)
- 3= 1.1000 + 0.2 × 0.0050 = 1.1010
The EMA moves a fifth of the way towards the new price, from 1.1000 to 1.1010.
A common mistake
A faster average is not a better one. An EMA responds sooner to real turns and to noise alike, and every moving average describes prices that have already happened.
Check yourself
Learn more
- Academy lessonMoving averagesSimple and exponential moving averages, how each is calculated, what the golden cross and death cross describe, and how the period changes behaviour.
- Academy lessonRSI and MACDHow the Relative Strength Index and MACD are constructed, what overbought, oversold, divergence and crossovers mean, and where signals mislead.
Educational information, not investment advice or a recommendation to trade.