Saturday, July 7, 2012

What is Exponential Moving Average

Exponential Moving Average or EMA is not very different from the Simple Moving Average (SMA). Both are essentially used to smoothen a curve to get a better sense of the underlying trend.

How they are different is that the Ema is more sensitive than the Sma. Ema reacts and moves faster than the Sma in following the value of the data. How that actually happens is that in the calculation of Ema, recent events are given greater weight than earlier events and thus it tracks the data much more closely. The Sma on the other hand gives equal weight to all values, and thus is slightly more lagged.

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