How do I set up the Exponential Moving Average, and how does it help in trading?
An exponential moving average (EMA) pays special attention to recent prices that are important for further trend formation. This is its main difference from a simple moving average that shows an average price movement of an asset, and this is why EMAs are more used by traders than MAs.
How to calculate an Exponential Moving Average
An exponential moving average is calculated by the following formula:
EMA = (price 1 x multiplier + EMA (previous day) x (1 - multiplier).
where the multiplier is calculated by the formula: 2 / (number of observations + 1).
For example, if you calculate an EMA for a 20-day period, the multiplier will be 2 / (20 + 1) = 0.0952.
How to use an Exponential Moving Average
Have a look at the screen. The blue line is the short-time EMA. Depending on the price movements around it, you will get a Buy or a Sell signal.
If the asset price is above the EMA line, it means that the asset is overbought. Soon, the price may drop back to the indicator value. That’s why it is the best time to sell the asset because later, its price may drop.
When the asset price is above the EMA, you will receive a Sell signal.
If the asset price moves below the EMA, it means that the asset is oversold. Soon, its price may start growing and reach the EMA, and thus, it is the best time to buy the asset.
When the asset price is below the EMA, you will receive a Buy signal.
The red line is a long-term EMA.
Depending on its behavior, you will also be getting Buy or Sell signals.
If the green EMA (short-term EMA) crosses the red EMA (long-term EMA) from below, you will get a Buy signal.
If the green EMA (short-term EMA) crosses the red EMA (long-term EMA) from above, you will get a Sell signal.
How to set up EMA
To set up signals based on an EMA movement, open the Alerts tab.
- Pick the exchange.
- Select the coin pair for which you want to receive alerts.
- In the Select indicator field, pick EMA - Exponential Moving Average.
- Click on the Set Alert button.
That’s it. Now, you will receive alerts as soon as a Buy or a Sell signal comes.
If you want to change the alert settings, click on the Open Settings button in front of the alert, and implement the required changes.
To delete the alert, click the Delete Signal button in front of the alert you want to delete.