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Lesson 15 - Exponential Moving Averages ( EMA)

Exponential Moving Average (EMA)

While simple moving averages are extremely useful, have the disadvantage of being highly susceptible to events extraordinary. For example:

Day 1: 1.4545
Day 2: 1.4550
Day 3: 1.4560
Day 4: 1.4565
Day 5: 1.4570

The result of the last 5 days - all rising - using simple moving average is 1.4558.

If we change the day 2 by the number 1.4500, because that day happened just a single event (eg a negative economic news because of an accident) the moving average would be affected. Then, to "filter" these unique events is used the Exponential Moving Average (EMA).

exponential moving averages give more prominence to the recent periods or days. In our example, the exponential moving average will continue to gain the values \u200b\u200bof 3 to 5.

The following figure shows the differences between a simple moving average and the other exponential.



Finally, we make a table of advantages and disadvantages simple moving average and exponential moving average:

	Simple Moving Average	Exponential Moving Average
Advantages	Your graph is smoother, and avoid giving false signals	trend changes as Confirmation of these are detected earlier
Disadvantages	Slow, which may delay the delivery of signals turnaround	Mayor possibility of reversal signals wrong.