Basics of Technical Analysis
What is the EMA?
Key takeaways
EMA is short for Exponential Moving Average, which is a trend indicator that gives more weighting to recent price data.
A golden-cross signal occurs when a shorter-term EMA moves above a longer-term EMA.
Understanding EMA
EMA refers to Exponential Moving Average, also known as the EXPMA indicator, which serves as a trend indicator.
If you intend to compare the relationship between a value and the average price, an MA would be sufficed. However, if you'd like to track the trend of the average price, an EMA would be suggested as it is more stable.
Here's how the EMA indicator works: It uses the weighted arithmetic average of the closing price to predict future price trends. Unlike other MAs, the EMA indicator gives more weight to recent prices. Therefore, an EMA is more sensitive to price changes as it puts a greater focus on recent data than on older data.
How to use an EMA efficiently in trading
To put it simply, go long when the EMA rises; go long when the price rises near the 10-day moving average; go short when the EMA falls, and go short when the price falls near the 10-day moving average. When the EMA is flat, it signals that there is no obvious trend in the market and less focus may be put on this indicator.
EMA indicators placed in the order from top to bottom are as follows: EMA5, EMA20, EMA50, EMA200, etc.
An EMA can be used as a support level or a pressure level. A rising EMA acts as a support for the stock price, whereas a falling EMA acts as a pressure on the stock price.
The use of EMAs is not limited to one instrument. Instead, you can set EMA lines for various trading instruments.
The most commonly used long-term EMAs by traders are EMA50, EMA100, and EMA200, whereas the most commonly used short-term EMAs, are EMA12 and EMA26.
A buy or golden-cross signal occurs when a shorter-term EMA moves above a longer-term EMA.
A sell signal can be identified when the shorter-term EMA line moves below the longer-term EMA line, which is also known as a death cross.
Pros and cons of EMAs
Pros: EMAs eliminate the drawbacks of giving equal weighting to all price changes, which is often the case for indicators like MAs. In a volatile market, EMAs are more reactive to price changes and thus have more strengths over simple MAs.
Cons: EMAs are vulnerable to short-term extremes or false signals as it adapts quickly to price changes.
How to set EMAs on moomoo
Step 1 Open the app and tap the stock chart you'd like to view
Step 2 Tap 1D to view the one-day chart
Step 3 Tap the EMA icon below
Step 4 Identify the default time frames for EMAs such as EMA10, EMA15, and EMA120
Step 5 Tap the settings icon on the upper right corner and tap Chart Settings> Indicators> EMA
Step 6 Set the time frames and colors for EMAs
Step 7 Go back to the stock chart to see if the EMA settings meet your demand
Images are for illustrative purposes only. Past performance does not guarantee future results.