Exponential Moving Average
Exponential Moving Average (EMA) is a technical indicator used in trading to follow price trends over a specified time period. Unlike the Simple Moving Average (SMA), which treats all prices equally, the EMA gives more weight to recent prices, making it more responsive to price changes. The formula to calculate the EMA is: Exponential Moving Average (EMA) = (K x (CP - PP)) + PP. Where: - C = Current price of the asset (stock, currency, commodity, etc.). - P = EMA of the preceding period. - K = Exponential smoothing constant, typically calculated as ( K = rac{2}{n + 1} ), where n is the number of periods. In practice, the first period’s EMA is usually calculated using the Simple Moving Average (SMA). The EMA can help identify trends, as well as support and resistance levels. However, it may not be the best tool for pinpointing exact entry and exit points due to its smoothing nature.
Related Terms
Capital Gains Tax
In India, capital gains—profits from selling assets—are taxed based on asset type (equity or debt)...
Grey Market
The grey market is an unofficial, marketplace where unlisted or soon-to-be-listed securities are bought and...
Depository Participant
A depository participant (DP) is a financial entity linking investors to depositories like CDSL or...
Commodity Spread Straddle
A commodity straddle is an options trading strategy where a trader buys both a call...
Liquidity Risk
Liquidity risk is the chance a company can’t meet its debt obligations due to insufficient...
Post Closing Session
Post Closing Session involves trading securities outside regular market hours. In India, regular trading runs...
