Features of the EMA (Exponential Moving Average) on Forex
Moving average not only allows to smooth the price charts, but also
simplifies for traders the opportunity to enter or leave the market on
time, which is very important while trading on the volatile market. To
increase the delay, which is normal for simple moving average, traders
on the currency market often use exponential moving average (EMA).
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The problem of the SMA is that it delivers double signals, i.e.
repeatedly reacts on one price change. First time – when the new signal
is received, second – when this value is being deleted from the
calculation of the average. It changes, when the new price value
appears.
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Location of the EMA indicator in the terminal |
Settings of the EMA indicator |
So, unlike to simple average, EMA is able to react on the price change
only once, in the process of its receiving. Due to this fact,
exponential average is considers to be more preferable for usage in the
procee of trading on Forex. The reason for this is the fact, that this
average provides greater importance to new data and less to the old
information, thanks to this it can react on current price changes faster
as well as not to be that dependent from the old price changes.
Wherein, it’s possible to achieve more quality smoothing.
It’s recommended to use exponential average as the most reliable
nowadays out of all similar ones. It cuts the delay due to the fact that
the biggest significance if given to the last prices. Also it should be
taken into consideration that the importance, given to the last price,
fully depends on the length of EMA period. the fact, that the weight,
which is given for last price, fully depend on the length of the EMA
period.
Such moving averages are defined via summing of certain part of the real
closing price to the last value. As a result, in case of the shorter
period of the EMA, bigger importance will be given to the last price.
This will give the opportunity to the curve to show on the price chart
almost real price changes of the currency pairs.
This property allows the exponential moving average to have better
quality relatively simple moving average. At the same time, this fact
can be considered as the disadvantage of the EMA, because due to the
fast reaction, it is more it is more inclined to the perception of the
wrong signals.
On the real chart The difference between these two moving averages on
the real chart is not so considerable, but it is clearly see. Many
experienced traders say, that EMA reflects the price situation on the
market more plausible, because the previous price influence decreases
exponentially in the process of its moving from the current price.
MA is used in the creating of many trading strategies and is applied in
many technical indicators. Wherein, the profitability of this strategy
directly depends on the period, which is used for the moving for one or
another time period. The most elementary is considered to be the way of
calculation of the best period, taking in consideration the average
period of holding the position relatively to the tempo of trading.
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Settings of the EMA indicator on the chart |
Also, you should understand, regardless of the correctness of the
calculation of the optimal period of MA using, while testing, you always
have the right to correct it to get the most true and real information.
Don’t forget about the fact that MA will always follow the available
trend, but very often can give signals with the delay. Regarding the The
use of such averages regarding the flat is not always effective. The
use of the moving average gives an opportunity to correctly define the
market situation only in the case of presence of all the corresponding
conditions. That is why you should always check all trading strategies
before entering or leaving the market.