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Moving averages can not only smooth the price chart, but also simplify it for traders to get the opportunity to enter or exit the market in a timely manner, which is very important when trading in a changing market. To increase delay, which is normal for a simple moving average, traders in the currency market often use exponential moving average (EMA).

Exponential Moving Average

The problem with EMA is that this indicator gives a double signal, for example reacting repeatedly to one price change. The first time – when a new signal is received, second – when the value is deleted from the average calculation. This indicator changes when the new price value appears.

 location of the EMA indicator in the terminal
Location of the EMA indicator in the terminal


EMA indicator settings

settings of the EMA indicator
Settings of the EMA indicator


EMA indicator settings

So, different from simple MA, EMA can only react once to price changes. That is when the price is received. Based on this fact, exponential Moving Average is considered more desirable for use in Forex trading. The reason is because this type of EMA is more concerned with new data than information that has been long, and thanks to this, EMA can react to the latest price changes faster. In addition, at the same time it can not be too dependent on old changes. Where in it EMA will be able to produce refinement of higher quality price charts.

Having these things allows the exponential moving average to have a relatively better quality than the simple moving average. At the same time, this fact can be regarded as a lack of EMA, because of its rapid reaction, this indicator tends to generate perceptions of the wrong signals.

On the actual chart, the difference between the two moving averages is not taken into consideration, but can be clearly seen. Many experienced forex traders say that EMA reflects more reasonable market conditions. That’s because the previous price affects the exponential decline when the price process moves from the current price.

How to use EMA

EMA is used to make many trading strategies and is used on many technical indicators. Where in it, the advantages of this strategy depend directly on the time period. Of course that is used to move from one period to another. The most basic thing to consider is how to calculate the best time period. Namely by considering the average period of time to maintain position relative to the trading rhythm.

settings of the EMA indicator on the chart
EMA indicator settings in the chart

EMA indicator settings in the Chart

Regardless of the truth of the calculation of the optimal time period used for MA, while conducting experiments. You always have the right to fix it to get the most true and true information.

We know that MAs will always follow the trends, often can provide signals with delays. Using these averages in flat conditions is not always effective.

The use of moving averages provides an opportunity to define market conditions correctly only if all conditions required are available. That is why you should always ensure all trading strategies before entering or leaving the market.

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