Moving Average Exponential

What

A Simple moving Average can lag to an undesirable extent, and can be disproportionately influenced by old data points dropping out of the average. An Exponential Moving Average addresses this by giving extra weight to more recent data points.

How

                       CP + (1-?) CP-1 + (1-?)² CP-2 (1-?)³ CP-3 + …

EMA =      ______________________________________________

                                 1 + (1-?) + (1-?)² + (1-?)³ +…

Where CP = closing Price, ? = 2 / P + 1 (where P = number of periods)

When calculating successive values, a new value comes into the sum and an old one drops out.

When

The difference between a Simple Moving Average and Exponential Moving Average can be viewed below & is not significant under normal market conditions. The EMA is coloured blue and the SMA is coloured red. Using an EMA opposed to an SMA will give you a reading with less lag & will be more tightly tracked to the price.