More on Exponential Moving Averages.

Here is more on exponential moving averages.

Exponential moving averages (EMA) give more weight to the most recent periods.

In our example above, the EMA would put more weight on the prices of the most recent days, which would be Days 3, 4, and 5.

This would mean that the spike on Day 2 would be of lesser value.

And it wouldn’t have as big an effect on the moving average as it would if we had calculated for a simple moving average.

If you think about it, this makes a lot of sense.

This is because this puts more emphasis on what traders are doing recently.

Exponential Moving Average (EMA) vs. Simple Moving Average (SMA)

Let’s take a look at the 4-hour chart of USD/JPY to highlight how a simple moving average (SMA) and exponential moving average (EMA) would look side by side on a chart.

Notice how the red line (the 30 EMA) seems to be a closer price than the blue line (the 30 SMA).

This means that it more accurately represents recent price action.

You can probably guess why this happens.

The exponential moving average places more emphasis on what has been happening lately.

When trading, it is far more important to see what traders are doing NOW.

We want information related to now rather than what they were doing last week or last month.

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