Exponential moving average (EMA)
An exponential moving average (EMA) is a moving average that gives more weight to recent prices, so it reacts faster than a simple average of the same length.
How Exponential moving average is calculated
EMA now = a x close now + (1 - a) x EMA one bar ago, where a = 2 / (n + 1). For n = 20, a is about 0.095. The first value is usually seeded with an SMA of the first n bars. Old prices never fully drop out, their weight just shrinks each bar.
How it is read
Read it like an SMA: price above or below it, a fast one against a slow one, or its slope. The 9, 12, 20, 21, 26 and 50 bar lengths are common.
Common mistakes
- Assuming faster means better. A faster line also flips more often and pays more trading costs.
- Comparing EMAs from two charting tools without checking the seed and the starting bar. Early values differ.
- Reading a cross of two EMAs as a forecast. It is a description of what already happened.
Test it yourself
Pick EMA as an indicator and use it in a cross rule, such as EMA 9 crosses above EMA 21. The Lab charges trading costs on every trade, fills on the next day's open, and shows how many attempts you have made.
What Tickfloor tested
Tickfloor's research desk has backtested 678 strategies, net of modelled trading costs. After correcting for the 761 tests run, 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
- 9/21 EMA Cross (claim test)
- 9/21 EMA crossover (claim test)
- VWAP plus 9 EMA, hourly crypto version (claim test)
Lessons that cover it
- Moving averages, RSI and MACD: what the lines calculate
- Trend following with moving averages: smoother, not better
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.