Technical Analysis Challenge Day 3 - EMA

Welcome back. What's new for today? Let's take a look at a new moving average indicator: exponential moving average (EMA).

What can you learn from the EMA challenge?
● Difference between MA and EMA
● Application of multiple moving averages
● Potential buy/sell signals sent by EMA

By now, you're probably asking yourself: which indicator is better? How to select a time frame that suits you the best? You may find the answers if you read till the end of the post.

EMA is a type of moving average that places a greater weight and significance on the most recent data points. It's used to produce buy and sell signals based on crossovers and divergences from the historical average. (Source: Investopedia)

We've summed up three critical points for you:
1. The EMA gives a higher weight to recent prices, while the MA assigns equal weight to all values. The EMA is more sensitive to price movement and provides more timely results than the MA.

2. A buy or golden-cross signal occurs when a shorter-term EMA moves above a longer-term EMA. A sell signal can be detected when a short-term EMA line moves below a longer-term EMA line.

3. At the indicated point, you can see that in an upward trend: when the price touches the line, EMA signals a support level. The price moves up again. This signal indicates potential buy points.

I want to compare the EMA20 and the MA20 lines of the stock. The chart shows that the EMA has much smaller time lag than the MA. It is because the EMA line adapts faster to price changes than the MA line, so the former releases signals earlier than the latter.

After setting them up, you can find the EMA20 and EMA200 lines in the chart. A buy or golden-cross signal occurs when EMA20 moves above EMA200. A sell signal occurs when the EMA20 line moves below the EMA200 line.

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