Exponential Moving Average (EMA)
Original schematic showing the guide's principal visual relationships.
Formula and components
A moving average that gives recent prices more weight and reacts faster than an SMA.
EMA(today) = Price × 2/(n+1) + EMA(previous) × [1 − 2/(n+1)].
How it works
The indicator transforms price, range, or volume observations over a selected lookback. Shorter settings react faster but create more noise; longer settings respond more slowly and emphasize the underlying regime. Always compare the reading with price structure and timeframe.
How to read it
EMA slope and price position describe trend direction, while fast/slow EMA crossovers describe changing alignment between horizons.
Confirmation checklist
Use slope, price position, and agreement across more than one lookback. A trend reading is more reliable when price structure and directional strength point the same way.
Limitations and false signals
Faster response also means more noise. Short EMAs can whipsaw repeatedly when price lacks a sustained trend.