What is it?
The Exponential Moving Average (EMA) is a trend-following indicator that gives more weight to recent prices, making it quicker to react to price changes than a simple moving average.

How is it used?

  • Trend direction: If the EMA slopes up, it’s a bullish trend; if down, bearish.
  • Crossovers: A shorter EMA (e.g., 12) crossing above a longer EMA (e.g., 26) signals a buy; crossing below signals a sell.
  • Support/resistance: Prices often bounce off EMAs in strong trends.

How is it calculated?
The EMA formula is:

EMA = (Current Price × Smoothing Factor) + (Previous EMA × (1 - Smoothing Factor))  

Smoothing Factor = 2 / (n + 1)  

Where n is the period (e.g., 12 or 26). The first EMA is often seeded with an SMA.

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