Exponential Moving Average shows the average value of the underlying data, most often the price of a security, for a given time period, attributing more weight to the latest changes and less to the changes that lie further away.
Exponential Moving average is together with its simple counterpart (MA) considered to be one of the most common Indicators in nearly any technical analysis software available in the market today. It’s a trend following indicator and is calculated like so:
EMA = Price(t) * k + EMA(y) * (1 – k)
t = today, y = yesterday, N = number of days in EMA, k = 2/(N+1)
For a complete walkthrough of how to calculate an EMA, see our EMA-walkthrough.
Exponential Moving Average is a trend following indicator.