Examining the EMA by Tim Treloar
You know how to apply the exponential
moving average, but what do you
know about its development and behavior?
Here’s a deeper look at the
popular moving average.
The popular exponential
moving average (EMA)
depends on data to develop
its distinctive characteristics,
and when it comes to data, more is better. But
before you put an EMA to work as a
technical indicator, a deeper understanding
of its development and behavior
is advised. At the very least, a
deeper understanding will justify the
practical application of it and at most
dispel some misconceptions associated
An EMA is essentially a type of
weighted average. The idea of a
weighted average is simple: each element
in a collection of numerical data
is multiplied by a number ranging from
zero to 1 (the decimal equivalent of the
percentile range zero to 100), called a
weight, such that the sum of the weights
always totals 1, and the weighted elements
are then added together.
A simple moving average (MA) is
perhaps the simplest example of a
weighted average in that all the elements
receive exactly the same weight.
In an exponential moving average, the
weight of each element decreases progressively,
usually according to its age
and usually by powers of a particular factor.