The exponential moving average is but one type of a moving average. In a simple moving average, all price data has an equal weight in the computation of the average with the oldest value removed as each new value is added. In the exponential moving average equation the most recent market action is assigned greater importance as the average is calculated. The oldest pricing data in the exponential moving average is however never removed.
A buy signal occurs when the short and intermediate term averages cross from below to above the longer term average. Conversely, a sell signal is issued when the short and intermediate term averages cross from above to below the longer term average. Use longer term averages when trading only two exponential moving averages in a crossover system.
It may be worth noting that a 5-day exponential moving average normally will include more than 5 days worth of data and could include data from the entire life of a futures contract. In fact, these moving averages might be better identified by their actual "smoothing constants," since the number of days of data in the calculation is the same for a so-called 5-day average as for a 10-day average. Exponential calculations can arrive at different moving average values depending on your starting point.
Information provided by Charles LeBeau's Technical Traders Guide to Computer Analysis of the Futures Market.
real-time data |
delayed data |
end-of-day data
