EMA: the moving average that reacts faster
Caliente Signals · Updated
An EMA weights recent closes more heavily than old ones. Same job as an SMA, different arithmetic. Nothing ever falls out of the calculation entirely; older closes simply count for less and less.
The effect is a line that sits closer to price and turns sooner. Sooner helps when the turn is real, and follows along when it is not, so an EMA and an SMA of the same length are two settings on the responsiveness dial rather than a better and a worse choice.
It goes anywhere an SMA goes: price crosses above EMA(50), EMA(12) crosses above EMA(26). Those last two are also the pieces MACD is built from.
Why the first candles look different
An EMA needs a value to build the first one from, so it starts with a plain average of the opening stretch of candles and grows the exponential weighting out of that.
The practical consequence is that an EMA is only fully itself once it has enough history behind it. Early in a backtest window the line is still settling, which is one more reason a long window tells you more than a short one.
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Caliente Signals is an alert tool, not an investment advisor. Nothing on this page is financial advice, and past performance is not indicative of future results.