## Great Resources Logo # EMA – Exponential Moving Average

This is a bit like simple moving average but is different in terms of weighing the data.In SMA all the periodical data gets the equal weight while in EMA the latest data gets more weight age . So it reacts faster to the recent price changes.Traders generally opt for 12 and 26 days EMA for short term,and 50 and 200 for long term.Short time period EMA are useful in creating the MACD and
percentage price oscillator.

Formula and calculation of EMA

The formula for an exponential moving average is:
EMA(current) = ( (Price(current) – EMA(prev) ) x Multiplier) + EMA(prev)
or
EMA = Last Day Weight x Last Day Price + Weight of Previous Exponential Moving Average x Previous Exponential Moving Average
For a percentage-based EMA, “Multiplier” is equal to the EMA’s specified percentage. For a period-based EMA, “Multiplier” is equal to 2 / (1 + N) where N is the specified number of periods.
For example, a 10-period EMA’s Multiplier is calculated like this:
(2 / (Time periods + 1) ) = (2 / (10 + 1) ) = 0.1818 (18.18%)
or
Weightcurrent = 2 / (Number of Days in Moving Average + 1)
Since the sum of all of the weights must equal 100%, the weights of the preceding 10 days must equal:
WeightMA = 100% – Weightcurrent
For this example, the weight of the preceding 10 days is 100% – 18.18% = 81.82%.
There are many variations of the exponential moving average. Many of these variations base their calculations of the EMA on the volatility of the market.
http://thismatter.com/money/technical-analysis/moving-averages.htm
http://en.wikipedia.org/wiki/Moving_average
For calculation of Exponential Moving Average In Excel
For excel calculation
We are using here the sheet provided by stockcharts for explaining it in a fast manner
First we have put the data on excel sheet from period 1 to 20 then we need to calculate the Smoothing constant we are taking here the period for 10 days so it will be calculated as
Smoothing constant or k =2/(1+10)
Now put this k in a cell
After the  Smoothing constant calculation, we move on to take the SMA of 10 days.It is easy as
simply put the formula of average from period 1 to period 10 and then using the + sign to
expand it for last periods.
Now comes EMA calculation
We use this formula
it will be used for first cell only
=sum(Period 1 cellname: period 10 cellname)/EMA period   – Which is 10 in this example
for next cells it will change a bit and it will be now
=sum(Period 1 cellname: period 10 cellname)/Smoothing constant cell name  – here it is 0.181818182
For plotting on graph chart select the EMA range and go on the insert chart then click on the chart type and set ok http://stockcharts.com/education/indicatoranalysis/EMAExample.xls
Now should i move to SMA or EMA. Which one is good for analysis point of view.As it all depends on the type of trader you are. The simple moving average obviously has a lag, but the exponential moving average may be prone to quicker breaks.Which means SMA shows a slower indications while EMA have more break failures.Some investors prefer simple moving averages over long time periods to identify long-term trend changes and for smaller EMA.Things depends on the way the stock price is moving that is the volatility.Each investor or trader should experiment with different moving average lengths and types to determine the best fit and trade-off between sensitivity and signal reliability.