Hello everyone, this is the second article of crypto article series. We have explained the very basics of technical analysis. If you did not read the moving average article, please read by following link.
Moving Average (MA)
So let’s begin with the EMA, or Exponential Moving Average.
The calculation for the SMA is simple; It is the sum of the stock’s closing prices during a time period, divided by the number of observations for that period.
For example, a 20-day SMA is just the sum of the closing prices for the past 20 trading days, divided by 20.
But the calculation for exponential moving average is different.
Equation for Exponential moving average = (K x (C – P)) + P
- K = exponential smoothing constant
- C= current price
- P= previous periods exponential moving average (simple moving average used for first periods calculation)
Lets simplyfy this more.
Further identification of EMA, this is a historical or past data analysing method. For example we can select date wise different charts for EMA. Like 7 days EMA, 14 Days EMA, 21 Days EMA etc. With the selected time period the EMA graph will differentiate.
See bellow examples
Red – EMA (21)
Blue – EMA (9)
Now you can clearly understand the higher time period will result a smooth graph with lower variation against the candle pattern. And lower time period will results a highly variable graph. For chart analysis one EMA will not sufficient. So we can use EMA (7) , EMA (21) and EMA (51) etc.
In our next article we will discuss about the market analyzing method using EMA.
Team – Newsican
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