Indicator
Exponential Moving Average (EMA)
An exponential moving average is a weighted average of past closes in which recent prices carry more weight than older ones. It responds to new information faster than a simple average of the same length.
Lower = reacts faster to recent closes and whipsaws more.
Chart runs on a generated sample series, not live or historical exchange data. Values are computed with the same functions CernoQuant uses to run backtests.
How it is calculated
How to read it
- It turns sooner than an SMA of the same period because recent closes dominate the calculation.
- Turning sooner means reacting to real changes earlier and also reacting to noise earlier. The same property produces both outcomes.
- The gap between a fast and a slow EMA widens as movement accelerates and narrows as it stalls — this relationship is what MACD formalises.
What it does not tell you
- Faster response is not more accuracy. An EMA changes direction more often, and most of those changes lead nowhere.
- Older prices never fully leave the calculation; they decay in influence but are never dropped, so a distant shock leaves a faint tail.
- Like every average, it lags. Nothing computed from past closes can do otherwise.
Common settings
Periods of 9, 12, 21, 26 and 50 are common conventions, several of which exist because they are the defaults inside MACD rather than for any independent reason.
Frequently asked questions
What is the difference between EMA and SMA?
SMA gives every close in its window equal weight. EMA weights recent closes more heavily, so it turns earlier. The trade-off is that turning earlier also means turning on noise more often.
Which EMA period should I use?
There is no period that is correct across markets or timeframes. Shorter periods track price closely and generate more direction changes; longer periods are smoother and slower. The choice is a trade-off, not an optimisation with one answer.
Why do the numbers 12 and 26 appear so often?
They are the default fast and slow lengths inside MACD, which dates from a period when the trading week was six days. They persist by convention.
Related
- Simple Moving Average (SMA) — Indicator
- MACD (Moving Average Convergence Divergence) — Indicator
- Lagging vs Leading Indicators — Concept
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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