Exponential Moving Average (EMA) is one of the types of moving averages. This trading tool is very popular and is one of the most searched indicators in the Pocket Option trading platform.
In this blog, I will share everything about the Exponential Moving Average on the Pocket Option and How you can use this indicator properly to place high-quality trades and find the perfect trading opportunities.
What is the Exponential Moving Average?
Exponential Moving Average is one of the popular trading tools that was developed to find the best trading signals and trading opportunities.
As I said above, The Exponential Moving Average is one of type of moving average unlike SMA the EMA places more weight on the most recent price data and therefore it is considered much more reliable than the SMA.
Unlike SMA, which only calculates the average price of a security the EMA assigns equal weight to each price data and uses a mathematical formula.
Formula
EMA = Closing Price * Multiplier + EMA (previous day) * ( 1 -multiplier)
How to Find Signals Using Exponential Moving Average?
Exponential Moving Average is one of the most reliable indicators and you can find both long and short-term trends using the same.
You just need to adjust the indicator period and the indicator behaves accordingly with a longer duration the indicator will be less sensitive while with a shorter duration, the indicator will be highly sensitive.
Long Period Signal: In order to find long-duration trading signals you need to first change the indicator period to 100.
When the price and the indicator line intersect each other you can can you those opportunities to find signals.
When the price intersects above line 100 it signals a bullish trend and you can place a buy trade here Similarly, When the price intersects below line 100 it signals a bearish trend and you can place a sell trade here.
Given above is the chart of EUR/NZD, and we can clearly see the price oscillating around the line.
When the price intersects above the line It signals a bullish trend and you can place a buy trade here and vice versa, When the price intersects below the line It signals a bearish trend and you can place a sell trade here.
How to find short-duration signals
Similarly, Finding short-term signals with EMA is no different you just need to adjust the indicator duration to a shorter duration.
Short Duration Signal: In order to find short-duration signals using EMA you need to focus on the intersection of the indicator and the price. When the price intersects above the line it signals a bullish trend and vice versa, when the price intersects below the line it signals a bearish trend.
Given above is the chart of AUD/USD and we can clearly the price oscillating around the line when the price intersects above the line it signals a bullish trend and you can place a buy trade here similarly, when the price intersects below the line it signals a bearish trend and you can place a sell trade
Note: Here I have used period 20 to find short duration signals.