Exponential Moving Average
The Exponential Moving Average is a moving average that weights recent prices more heavily than older ones.
What It Measures
Trend, with faster reaction than a simple average.
The Math (Simplified)
Instead of giving every day equal weight, each new price gets a fixed share (e.g. 2/(N+1)) and everything else gets the remainder.
Default Inputs & Tuning
12 and 26 are the classic fast/slow pair, popularized by MACD. 50 and 200 also work as EMA trend filters.
When It Works (Market Edge)
Trending markets where you want an early, smoother signal than an SMA gives.
When It Fails
Choppy markets, where its speed produces more whipsaw trades than a slower average would.
Common Myths
Myth: EMA is always better than SMA because it reacts faster.
Truth: Faster reaction cuts both ways: it enters trends earlier but also exits on noise earlier, which costs money in ranges.
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