Exponential Moving Average
The Exponential Moving Average (EMA) is a type of moving average that gives more weight to recent prices, making it more responsive to new information compared to a simple moving average. This means that when calculating the EMA, the most recent prices have a greater influence on the average, which helps traders identify trends more quickly. For example, if the price of a stock is rising, the EMA will reflect that increase more promptly than a simple moving average, helping investors make timely decisions.
Traders often use the EMA to spot potential buy or sell signals. When the price of an asset crosses above the EMA, it may indicate a buying opportunity, suggesting that the asset's price is trending upwards. Conversely, if the price falls below the EMA, it might signal a sell opportunity, indicating a potential downward trend. Overall, the EMA is a useful tool for traders who want to analyze price movements and trends in a fast-paced market.
By CA L.Muralidharan and CPA L.Mukundan
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