Exponential Moving Average (EMA)
An Exponential Moving Average (EMA) is a moving average that places a greater weight and significance on more recent data points when compared to Simple Moving Averages (SMAs) which treat all data points equally. EMAs are commonly used in technical analysis to smooth out price data and identify trends.
Unlike SMAs, which calculate the average of a fixed number of data points, EMAs give more weight to recent data, making them more responsive to changes in price. This responsiveness is achieved by using a multiplier that decreases exponentially as data points move further back in time.
In essence, the EMA formula calculates a weighted average of the current data point and the previous EMA value, with the weight of the current data point determined by the multiplier.