Definitions
A moving average that gives greater weight to more recent data in an attempt to reduce the lag of (or “smooth”) the moving average.
Moving averages can not only smooth the price chart, but also simplify opportunities for traders to enter or leave the market on time, which is very important for trading in a volatile market. In order to increase the delay time (which is normal for simple moving averages), traders in the currency market usually use exponential moving averages (EMA).
Exponential moving average
The problem with EMA is that it provides dual signals, that is, it repeatedly acts on a price change. The first time-when a new signal is received, the second time-when this value is deleted from the calculation of the average. When a new price value appears, it will change.
Therefore, unlike the simple average, the exponential moving average can only act on price changes once in the process of receiving it. Due to this fact, the index is considered to be more applicable to the trading process on foreign exchange on average. The reason is that this average provides more importance to new data and less importance to old information. Because of this, it reacts more quickly to current price changes and is not considered to be dependent on old information. The price changes. Among them, it is possible to achieve better quality smoothing.
As the most reliable one among all similar averages, we recommend using exponential averages. Because of the greatest significance, it reduces the delay time if it leans towards the final price. The importance of the final price should also be considered, which depends entirely on the length of the exponential moving average period.
As the most reliable one among all similar averages, we recommend using exponential averages.
Such a moving average is defined by the sum of the actual closing price to a certain part of the final value. Therefore, if the period of the exponential moving average is shorter, the more importance is given to the final price. This will give the curve on the price list the opportunity to show almost the actual price changes of the currency pair.
This feature allows exponential moving averages to have better quality than simple moving averages . At the same time, this fact can be regarded as the disadvantage of exponential moving average, because it is more inclined to the perception of false signals due to its fast response.
On the actual chart, the difference between the two moving averages on the solid line chart is not very big, but it can be clearly seen. Many experienced traders say that the exponential moving average reflects a more credible price situation in the market, because the previous price deviates from the current price and decreases exponentially.
How to use EMA?
Moving averages are used in the creation of many trading strategies and are applied to many technical indicators . Its characteristic is that the profitability of this strategy directly depends on the period used to move to one or another time period. Taking into account the average period of holding positions relative to transaction speed, the most basic is considered the best period calculation method.
In addition, you should understand that no matter whether the calculation of the best period used by the moving average is correct or not, when testing, you always have the right to correct it to get the truest and correct information.
Don’t forget the fact that the moving average will always follow the existing trend, but it can often give a delayed signal. It is not always effective to use this average value for the plane concerned. Only when all the corresponding conditions exist, the use of moving averages can provide an opportunity to correctly define market conditions. This is why you should check all trading strategies before entering or leaving the market.