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Glossary · Indicators

EMA (Exponential Moving Average)

A moving average that gives more weight to recent prices, so it reacts faster to new moves than a simple moving average does.

By Sky Trade editorial teamUpdated

An exponential moving average updates by blending the new close with the previous EMA: EMA = close × k + previous EMA × (1 − k), where k = 2 ÷ (N + 1). For a 20-period EMA, k is about 0.095, so the latest close carries roughly 9.5% of the weight and older prices fade gradually instead of dropping out abruptly.

Compared with the SMA, the EMA hugs price more closely and turns sooner. That suits short-term trading, but it has a cost: faster means more whipsaws in choppy markets. Every moving average trades responsiveness against smoothness; the EMA simply sits closer to the responsive end.

Common uses include trend filters, dynamic support during pullbacks and crossovers such as EMA 9 over EMA 21. The MACD indicator is built entirely from EMAs.

A frequent misconception is that a faster average gives earlier, and therefore better, signals. Earlier signals are also less confirmed, and in ranges they fire back and forth.

Sky Trade's “AI trading” mode uses an EMA trend combined with momentum as its signal — a rule, not a promise of profitable results. See moving averages: SMA and EMA.

Example

A 9-period EMA (k = 0.2) stands at 1.0850 and the next close is 1.0860. The new EMA is 1.0860 × 0.2 + 1.0850 × 0.8 = 1.0852.

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