The Exponential Moving Average (EMA) represents an average of prices, but places more weight on recent prices. The weighting applied to the most recent price depends on the selected period of the moving average. The shorter the period for the EMA, the more weight that will be applied to the most recent price.
EMA = ( P - EMAp ) * K + EMAp
- P = Price for the current period
- EMAp = the Exponential moving Average for the previous period
- K = the smoothing constant, equal to 2 / (n + 1)
- n = the number of periods in a simple moving average roughly approximated by the EMA