The exponential moving average (EMA) gives more weight to recent prices. It turns faster when price changes direction.
Why traders like it
Markets care about now more than three weeks ago. The EMA reflects that, so it's popular with day traders and swing traders. The 9, 20, 50 and 200 EMA are favourites.
The trade-off
Faster means more false signals in choppy markets. Slower means later signals but fewer fakeouts.
Wick says
EMA = eager. SMA = slow and steady. Pick based on whether you need speed or calm.
Key takeaways
- EMA weights recent prices more heavily.
- It reacts faster than an SMA of the same length.
- Faster is great in trends, noisy in ranges.