InvestorQ : How the exponential moving average (EMA) is different from the simple moving average (SMA) and what is its significance?
Rutuja Nigam made post

How the exponential moving average (EMA) is different from the simple moving average (SMA) and what is its significance?

Answer
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Arti Chavan answered.
1 year ago


The Exponential Moving Average (EMA) is similar to Simple Moving Average (SMA) when it comes to measuring trend direction over a period of time. The difference between the EMA and the SMA is more in the methodology of calculation and smoothness of output that they can give. However, whereas SMA simply calculates an average of price data, EMA applies more weight to data that is more current. Because of its unique calculation, EMA will follow prices more closely than a corresponding SMA. The problem with the SMA is the same as that of a simple mean calculation. It is too vulnerable to large numbers and thus distorts the average in a big way. Since the EMA is a more smoothened version than the SMA, it is less vulnerable to the vicissitudes of the market prices. Hence as a decision point, the EMA becomes more powerful than the SMA.