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Take a look of our daily scan results on Exponential Moving Average (EMA) and its formula.

Exponential Moving Average (EMA) is similar to Simple Moving Average (SMA), except that there are more weight is given to the latest data.

Simple Moving Average is the average of the stock closing price for certain number of day in the past (depends on the number of days you analyze), for example if you want to calculate the last 13 days simple moving average, the you just need to add the last 13 days closing price and divide the number by 13.

Take a look of our daily EMA scan results

Exponential Moving Average is slightly complicated, it weights the most recent data more heavily. The formula to weight the current trading day’s value is 2/(n+1), where ‘n’ is the number of day of the moving average. The result will then be added to the previous day EMA.

Formula
The following are the steps to calculate EMA

EMA = (S * (C-P)) + P

S = Smoothing Constant
C = Current Closing Price
P = Previous Closing Price

Formula for Smoothing Constant is:

S = 2/(1+N)

N = Number of days for EMA

Trading Signals

The most simple trading are given when EMA crossover stock price. When EMA crossed stock price from top, it gives a bearish signal, on the other hand, when EMA crossed stock price from bottom, it gives a bullish signal.

Some other traders may look for crossover of long term and short EMA for trading signal, eg: when a short term EMA (12 or 26-days) crossover a long term EMA (50 or 200 days) from the top, it gives a sell signal and vice-versa.

Caution: Every strategy has its drawbacks and this one is definitely no excaption and we strongly advice you to combine this strategy with other technical analysis to determine a strong and valid entry point.