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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.

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Lesson 14 - Moving Average (SMA)

A moving average is a simple way to soften the price over time. Moving averages are the sum of the closing prices of a currency "x" divided by the number of periods.

Like any indicator, the moving average is useful to predict future prices. Only by observing the behavior of the moving average graph one can predict the trend.

There are several types of moving averages, and generally a greater period of time will smooth the curve of the graph.

simple moving average (SMA).

A simple moving average is based on an "x" number of periods. Ex: They take the last 10 days of closing, then summed and divided by 10, and gives us an average. Then we do same two wings 11 to 1 days and divide by 10 having the above. Then from 12 to week 2 ...

Most softwares do the math, but it is important to understand the concepts behind each indicator.

The following chart shows different types of moving averages and how smooth the curve.

The red line is 10 times
yellow line 30 times
blue line 50 periods