An Exponential Moving Average (EMA) is a technical chart indicator which tracks changes in the price of a financial asset over a certain period. EMA can change quickly to new price changes as it uses the latest price data available. The primary objective of EMA is to identify trends of a financial instrument based on its previous price points and thus it is a ‘lagging indicator’. Moving averages are used to study and confirm if there have been any changes in a stock’s price trends.
Some advantages of EMA are
1. An EMA line moving upward is indicative of an uptrend and vice versa.
2. In Technical analysis, if the EMA line is above the asset’s price, it is indicative of a fall and if the price level is above the EMA line, it is taken as an indication that the asset’s value will continue to increase.
3. Traders identify buy and sell signals with the EMA.
4. Exponential moving averages also act as resistance and support levels.
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