InvestorQ : How do we interpret and get cues from the EMA for trading profitably?
Rutuja Nigam made post

How do we interpret and get cues from the EMA for trading profitably?

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Arti Chavan answered.
1 year ago

Since SMA and EMA are conceptually the same you can use same rules for SMA EMA. Keep in mind that EMA is generally more sensitive to price movements. This can be a double-edged sword. On one side, it can help you identify trends earlier than an SMA would. On the flip side, the EMA will probably experience more short-term changes than SMA.

The best way to use the EMA is to determine trend direction, and trade in that direction. When the EMA rises, you may want to consider buying when prices dip near or just below the EMA. When the EMA falls, you can consider selling when prices rally towards or just above the EMA.

Moving averages can indicate support and resistance areas too. A rising EMA tends to support the price action, while a falling EMA tends to provide resistance to price action. This reinforces your strategy of buying when the price is near the rising EMA and selling when the price is near the falling EMA.

Moving averages, including the EMA, are not designed to identify a trade at the exact bottom and top. Moving averages may help you trade in the general direction of a trend, but with a delay at the entry and exit points. The EMA has a shorter delay than the SMA with the same period.