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Crypto Terms:  Letter E
Jun 19, 2023 |
updated Apr 03, 2024

What is EMA (Exponential Moving Average)?

EMA (Exponential Moving Average) Meaning:
EMA (Exponential Moving Average) - an indicator used to show the recent changes in price while maintaining the observations of older charts.
2 minutes

Let's find out EMA (Exponential Moving Average) meaning, definition in crypto, what is EMA (Exponential Moving Average), and all other detailed facts.

Exponential Moving Average (EMA) is a technical indicator that analyzes recent data on the price changes of an asset. It is frequently used by traders who observe changes in the traditional or cryptocurrency markets and act accordingly. The EMA reacts to asset changes faster than other moving averages (MAs). An indicator is used to draw the EMA line.

If the candles in the graph are above the EMA lines, the index shows an uptrend, which can signal a bullish market. If the candle appears below a line, it indicates that the market price has fallen. EMA graphs can be used to predict price movements based on the ongoing price patterns. It’s considered to be an efficient tool in financial markets.

Since EMA is seen as reliable for market direction predictions, it is used alongside other technical indicators to better determine market changes and trends. It is often used by traders taking part in fast-moving markets and can help detect trading biases.

According to market experts, there are two EMA settings preferred by different types of traders:

  • 8-day and 20-day EMAs: preferred by day traders;
  • 50-day and 200-day EMAs: preferred by long-term traders.

The formula to calculate the exponential moving average is:

EMA (Exponential Moving Average): The EMA formula

EMA = Exponential Moving Average; Smoothing = 2; the smoothing factor can be increased if traders want the most recent price data to have more influence on the indicator.

The calculation can be complicated as EMAs provide the most recent inputs of the asset price. While the small moving average (SMA) is also a reliable indicator, the data provided by applying EMA reacts more to sudden price fluctuations and market reversals.

Alongside EMA, other popular technical indicators used by traders to analyze the asset data in traditional and crypto markets are the relative strength index (RSI), moving average convergence divergence (MACD), on-balance volume indicator (OBV), Aroon indicator, and the stochastic oscillator.

The range of technical indicators helps explore different mechanisms and aspects of a financial aspect, such as volume or price weightage. It is generally recommended to use a number of varying indicators before making an investment in any asset on both traditional and crypto markets.