Below you see a five-period and a twenty-period moving average side by side, for you to see the difference yourself. The biggest advantage of using this setting is that you get a somewhat smoothened reading, which will reduce the effect of sudden and swift price changes, which may distort your analysis.ĮMA 13 and EMA 20: These are somewhat longer than the two previous settings, but due to the nature of exponential moving averages, they still will trail the price closely.
With that said, here follow some of the most common settings for the exponential moving average!ĮMA 5 and EMA 9: The five and nine period EMAs are very short, and will trail the price closely. However, to know what works best in your particular situation, you’d better use backtesting, since all markets and timeframes have quite different characteristics. And while we don’t say that these are the best settings, they can work quite well. With this in mind, we wanted to cover the most common exponential moving average settings. For example, you’ll need a much longer EMA setting to define the long term direction of the trend, than to define more short term fluctuations. To be able to answer this question, we first need to know what you’re aiming to use it for. One of the most common questions we get is which length will produce the best results. Since the formula uses the EMA of the previous bar, “ previous EMA” will need to be placed with a normal moving average as the calculation is carried out on the very first bar.įurther Reading: Exponential Moving Average Strategy Selecting the Best Exponential Moving Average Settings Then you calculate the EMA with the formula belowĮMA = * Multiplier + previous EMA The formula for the multiplier is as followsģ. Then we need to come up with the multiplier, which will give the last data point a higher weighting, depending on how long the average is. In other words, the 20-period SMA will be the average of the 20 most recent close prices, which simply means that you divide the sum of all close prices by 20.Ģ.
First, you need to compute the Simple Moving Average, which is a plain moving average. As a result, the exponential moving average will trail the price much more closely than a regular moving average.ĮMA is calculated in the following steps:ġ. Let’s begin! Exponential Moving Average – EMA Definition and CalculationĪs we just mentioned the exponential moving average is a type of weighted average, where the recent data point is given more weight, meaning that it has a bigger impact on the moving average line. We’re also going to look closer at how you may decide which settings are the best for your market and timeframe. We’re going to cover how it’s calculated and used, and some of the more common trading methods involving the indicator. In this guide to the exponential moving average, you’re going to learn everything you need to know about the indicator.
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