Exponential Moving Average (EMA)

The Exponential Moving Average (EMA) is a type of moving average calculated by applying an exponential weighting factor to prices. Unlike the Simple Moving Average (SMA), which assigns equal weight to all data over the period considered, the EMA places greater importance on the most recent prices. This characteristic makes the EMA more sensitive to recent price fluctuations and allows it to react more quickly to changes in market direction. The calculation of the EMA involves a smoothing factor, often based on the period considered (e.g., 2/(period + 1) for an EMA over 'period' days).