Exponential Moving Average (EMA)

An EMA is a very common trend indicator. It reacts quicker than the Simple Moving Average to price changes. How does it do it? The EMA gives greater weight to the latest closing prices of the moving average. That is, the most recent price levels will determine to a greater extent the development of the moving average. Like the SMA, traders use this indicator to spot trends and trend reversals. This is done by crossovers between a fast and a slow moving average. When the fast moving average crosses the slow one upwards, a buy signal will be generated since the price can be starting a bullish trend. On the other hand, when the fast moving average crosses the slow one downwards the opposite happens, the bears are taking over and a sell signal is open.

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