GLOSSARY // Technical Analysis
Exponential Moving Average (EMA)
An exponential moving average weights recent prices more heavily than older ones, using a smoothing multiplier of 2 / (N + 1) applied to each new close. The formula is: today's EMA = prior EMA + multiplier x (today's close - prior EMA). Old data never fully drops out; its influence just decays toward zero.
The recency weighting makes the EMA turn faster than a simple moving average of the same length, which is why momentum traders favor it for shorter timeframes. The 9-day and 20-day EMAs are common day trading and swing trading trend guides, and the MACD indicator is built entirely from EMAs (the 12-period and 26-period).
Faster response cuts both ways. The EMA hugs price more closely in a trend, but it also whipsaws more in sideways tape, generating crossover signals that a slower average would have ignored.
For a 20-day EMA the multiplier is 2 / 21 = 0.0952. Yesterday's EMA was 100.00 and today's close is 105.00. New EMA = 100.00 + 0.0952 x (105.00 - 100.00) = 100.48. A 20-day SMA absorbing the same close would have moved only by the difference between 105 and the close dropping out of its window, divided by 20.
Put it to work
Related terms
Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.