What is the EMA?

The EMA is one of the most commonly used types of moving averages in technical analysis.

The EMA stands for Exponential Moving Average, also known as the exponential moving average.

This is a technical analysis tool that reflects the exponential price movement, thereby helping investors to identify price movements more accurately and minimize price noise compared to the price movement. regular moving average.

Formula for calculating EMA:

EMA(t) = P(t) x K + EMA(t-1) x (1 – K)

In there:

- P(t) is the closing price of the stock today.

- K is the calculated smoothing factor = 2/(1+N) where N is the number of cycles (5 days, 10 days, 20 days, ....).

- EMA(t) is today's EMA value.

- EMA(t-1) is the previous session EMA value.

The movement of the EMA reflects the moving trend of the price, through which investors grasp the current price trend situation.

The EMA sloping up shows that the price is going up, the market is in an uptrend. Conversely, a downward sloping EMA shows that the price is going down, the market is in a downtrend. The horizontal EMA means that the price is also moving sideways, the market is in a sideways state.

Depending on the time frame investors choose to use for analysis, then they can choose to use the appropriate EMA. The EMA is divided into 2 time frames, including:

- Slow EMA or long-term EMA such as: EMA50, EMA100 and EMA200, corresponding to periods of 50, 100 and 200.

- Fast EMA or short term EMA like EMA10 and EMA20, respectively 10 and 20 period.

Accordingly, if the price line crosses above the short-term EMA, the price is likely to enter a short-term uptrend. On the contrary, if the price line cuts below the EMA, the price will tend to decrease in the near future. This method is also applicable to long cycles.

In addition, investors can also trade based on the crossover of the 2 EMAs. Accordingly, if the short-term EMA crosses above the upward long-term EMA, the price is likely to enter a strong uptrend, investors should consider placing a buy order. On the other hand, if the short-term EMA crosses below the long-downward EMA, a strong downtrend is forecast.

Like other technical analysis tools, EMA cannot forecast completely. In a sideways market and the trend is not clear, this indicator can give misleading signals. Accordingly, investors should combine with other types of indicators to be able to make the most accurate decisions.