Modified Exponential Moving Average

What

The Modified Exponential Moving Average is very similar to the standard exponential moving average and differs only in the manner in which the smoothing factor is calculated. The smoothing factor is the element in the formula that converts the number of bars to be considered into a decimal that represents that length. In a standard exponential moving average the formula is as follows:

How

EMA = EMA t-1 + SF * (Price – EMA t-1)

Where: SF = 2 / (1 + Length of Average)

The formula for the modified version is essentially the same, but the smoothing factor is calculated as follows:

SF = 1 / Length of Average

The effect of the different smoothing factor basically slows the average but there will be equivalents. For example, let's take the case of a 19 period standard moving average. The smoothing factor will be:

SF(standard) = 2 / (1 + 19) = 0.10

We can calculate the modified smoothing factor by substituting the result of the standard smoothing factor into the modified equation thus:

0.1000 = 1 / Modified Length

=> Modified Length = 1 / 0.1000 = 10

When

Use is the same as the EMA. The difference between the EMA and MEMA can be viewed below. The MEMA is coloured blue and the EMA is coloured red.