Double Exponential Moving Average trading indicator

Exponential Moving Average (EMA) – is a type of moving average (MA) that places a greater weight and significance on the most recent data points. The exponential moving average is also referred to as the exponentially weighted moving average.

Formula:

There are three steps to calculate the EMA. Here is the formula for a 5 Period EMA

1. Calculate the SMA

(Period Values / Number of Periods)
2. Calculate the Multiplier

(2 / (Number of Periods + 1) therefore (2 / (5+1) = 33.333%
3. Calculate the EMA

For the first EMA, we use the SMA(previous day) instead of EMA(previous day).

EMA = {Close - EMA(previous day)} x multiplier + EMA(previous day)

Key Takeaways:

1. The EMA is a type of weighted moving average that gives more weighting to recent price data.
2. The EMA is designed to improve on the idea of a Simple Moving Average (SMA) by giving more weight to recent data.
3. Moving average ribbons allow traders to see multiple EMAs at the same time.

Counterarguments:

1. The EMA may not be the best indicator for all types of investments.
2. The EMA may not be the most reliable indicator for predicting future price movements.