Exponential moving average
A moving average that gives more weight to recent prices, so it reacts to a change in trend sooner than a simple average.
What an exponential moving average is.
A moving average that leans towards the latest prices.
An exponential moving average, or EMA, is a line that tracks the average price over a set period. Unlike a simple average, it gives the newest closes the most weight.
Older closes still count, but their influence fades a little with every new bar. So the EMA tends to turn sooner when the trend changes.
That speed is the trade-off. An EMA reacts faster than a simple moving average of the same period, but it also reacts more to short, noisy moves.
How it is calculated.
Each new value starts from the last one. Your platform does the maths for you.
Work out the multiplier.
The multiplier is 2 ÷ (period + 1). For a 20-period EMA that is 2 ÷ 21, or about 0.095.
Start from a first value.
The first EMA is usually the simple average of the first 20 closes. It gives the calculation a starting point.
Move part of the way to the new close.
On each new bar, take the gap between the close and the last EMA, and add about 9.5% of it.
Repeat on every bar.
Because each value builds on the last, every past close still counts a little, with its weight shrinking over time.
EMA today = EMA yesterday + k × (close today − EMA yesterday)
For n = 20, k ≈ 0.095: each new close pulls the line about 9.5% of the way towards it
| Simple (SMA) | Exponential (EMA) | |
|---|---|---|
| Weighting | Every close counts the same | Recent closes count most |
| At a turn | Turns later | Turns sooner |
| In a choppy market | Steadier | More false turns |
| Old prices | Drop out completely after n bars | Fade gradually and never fully disappear |
How to read it.
How traders use an EMA. None of these is a signal on its own.
Direction and slope.
A rising EMA with price above it describes an uptrend. A falling EMA with price below it describes a downtrend.
Turning points.
In a steady trend, an EMA and an SMA of the same period lag by similar amounts. The difference shows at turns, where the EMA reacts first.
Two EMAs together.
A fast and a slow EMA, such as 12 and 26, are often plotted together. Their crossovers show momentum shifting from one side to the other.
Pullbacks to the line.
In a trend, some traders watch how price behaves when it dips back towards the EMA. A clean break through it can suggest the trend is weakening.
The gap between a 12-period and a 26-period EMA is the basis of the MACD indicator. Learning the EMA first makes MACD much easier to follow.
Common mistakes.
Where traders new to the EMA most often go wrong.
Assuming faster means better. A quicker line also reacts to noise, so it can give more false signals in a sideways market.
Comparing an EMA and an SMA with different periods, then calling the EMA faster. Compare the two with the same period.
Treating the line as a floor that must hold. Price can cut through an EMA without any warning.
Reading crossovers in isolation. A crossover describes momentum that has already shifted, not where price goes next.
Using it on MetaTrader 5.
The exponential moving average is built into MT5, on desktop, web and mobile.
Open a chart.
In MetaTrader 5, open the instrument and timeframe you want to study.
Add the indicator.
Go to Insert, then Indicators, then Trend, and choose Moving Average.
Set it to Exponential.
In the Parameters tab, set MA method to Exponential and the Apply to field to Close. Then enter the period you want, such as 20.
Pick a colour.
On the Parameters tab, choose a line colour you can tell apart from any other average on the chart.
Save it as a template.
Right-click the chart, choose Templates, then Save Template, so you can apply the same set-up to other charts.
Questions, answered.
What traders ask most about exponential moving averages.
01Is an EMA better than an SMA?
02What period should I use?
03Why does the EMA never fully forget old prices?
04Does the EMA work on forex?
05Can I practise with it first?
Practise it on a demo.
Put an EMA and an SMA of the same period on a free MT5 demo chart and compare their turns before trading real money.
Trading CFDs on a live account puts your capital at risk and you can lose money. A demo does not.