What is an Exponential Moving Average?
EMA (Exponential Moving Average)
Forex Trading Glossary
Quick Answer: An exponential moving average gives more weight to recent prices so it reacts faster than a simple average. EMAs help traders track momentum, define dynamic support, and time entries on pullbacks.
What is EMA (Exponential Moving Average)?
EMA is a type of moving average that gives more weight to recent price data, making it more responsive to new information than SMA. The EMA reacts faster to price changes, making it popular with short-term traders and day traders.
EMA Characteristics
- Responsive: Reacts faster than SMA to price changes
- Recent bias: Weights latest prices more heavily
- Less lag: Provides earlier signals than SMA
- Popular periods: 9-EMA, 21-EMA, 50-EMA, 200-EMA
Trading Applications
- Trend following: Trade in direction of EMA slope
- Dynamic support/resistance: Bounces off EMA levels
- Entry timing: Enter on pullbacks to EMA
- Multiple EMA system: 9/21 crossover for signals
EMA is favored by active traders for its quick response to market changes, while position traders prefer the smoother SMA for longer-term trend identification.
Related Terms
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