Exponential Moving Average

Parameters: period = 20 (2–200)

Overview

The Exponential Moving Average (EMA) is a type of moving average that places greater weight and significance on the most recent data points. Unlike the Simple Moving Average (SMA) which assigns equal weight to all values, the EMA uses a smoothing factor that exponentially decreases the weights of older observations.

This mathematical approach makes the EMA more responsive to recent price changes, allowing it to capture trends earlier than the SMA. Popular EMA periods include 8 and 20 days for short-term trading, while 50 and 200-day EMAs are commonly used for longer-term trend analysis.

Interpretation & Trading Signals

Trend Following Signals:

  • Rising EMA: Buy when prices dip near or just below the EMA in an uptrend
  • Falling EMA: Sell when prices rally towards or just above the EMA in a downtrend
  • Dynamic Support/Resistance: Rising EMA acts as support, falling EMA acts as resistance
  • EMA Slope Change: Flattening or direction change signals potential trend reversal

EMA Crossover Strategies:

  • Fast/Slow Crossover: 8-day EMA crossing above 20-day EMA signals uptrend entry
  • Price/EMA Cross: Price crossing above EMA suggests bullish momentum shift
  • Multiple EMA Alignment: When short, medium, and long-term EMAs stack in order, trend is strong
  • EMA Bounce: Price bouncing off EMA in trend direction confirms trend continuation

EMA vs SMA Considerations:

  • Faster Response: EMA reacts quicker to price changes - ideal for short-term trading
  • More Signals: Generates more frequent trades but also more false signals in choppy markets
  • Timeframe Usage: Day traders prefer 8/20 EMAs, swing traders use 50/200 EMAs
  • Market Conditions: Works best in trending markets, struggles in consolidation

Example Usage

Code examples will be available once the Rust implementation is complete.

Performance Analysis

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