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Unlike Simple Moving Averages, an Exponential Moving Average places greater weight on recent prices and a lesser weight on past prices. This weighting, gives a smoother look to the line, and will follow the market action more closely as volatility rises and falls. The Variable for an Exponential Moving Average is the Percent Weighting (fPercent) but is commonly referred to as the period. |
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Similar to Simple Moving Averages, Exponential Moving averages are commonly used in pairs, with each having a differing period of calculation. The Chart left shows BHP with 2 Exponential Moving averages applied ( 30 perc Red | 15 perc Blue). As can be seen on the Chart the Crossover events are when the lines crossed over each other indicating a change of trend. Like normal moving averages, this method is very effective when markets are trending strongly, however can give multiple calls when markets are sluggish and directionless. |
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