Exponential Moving Average (EMA)
An exponential moving average (EMA) is a type of moving average (MA) that places a greater weight and significance on the most recent data points. The exponential moving average is also referred to as the exponentially weighted moving average. An exponentially weighted moving average reacts more significantly to recent price changes than a simple moving average (SMA), which applies an equal weight to all observations in the period.
History of the Term
The exponential moving average was developed by J. Welles Wilder, Jr. in 1978. Wilder was a technical analyst who developed a number of technical indicators, including the Relative Strength Index (RSI). The exponential moving average was developed to address the limitations of the simple moving average. The simple moving average is a lagging indicator, meaning that it is based on past prices and will always lag behind the current price. The exponential moving average was designed to reduce the lag by applying more weight to recent prices.
Comparison Table
| Indicator | Weight Applied to Recent Prices |
|---|---|
| Simple Moving Average (SMA) | Equal |
| Exponential Moving Average (EMA) | Greater |
Summary
The exponential moving average is a type of moving average that places a greater weight and significance on the most recent data points. It was developed by J. Welles Wilder, Jr. in 1978 to address the limitations of the simple moving average. The exponential moving average is more reactive to recent price changes than the simple moving average. For more information on the exponential moving average, you can visit Investopedia, TradingView, and other financial websites.
See Also
- Simple Moving Average (SMA)
- Relative Strength Index (RSI)
- Moving Average Convergence Divergence (MACD)
- Bollinger Bands
- Parabolic SAR
- Average Directional Index (ADX)
- On-Balance Volume (OBV)
- Stochastic Oscillator
- Commodity Channel Index (CCI)
- Price Channel
