What Is EMA? Everything You Need to Know Before Trading [2021]

What is EMA in the trading industry?” is a widely searched term on the internet nowadays. It holds greater importance in cryptocurrency price signals, short-term and long-term investments, entry and exit points, stock prices indicator, and many others.

If you have plans to invest in crypto in the future, you need to learn the basic trading concepts. So, you don’t have to worry about anything; we are going to cover for you.

Today in this article, you will learn about the essential trading indicator, Exponential Moving Average (EMA). We will put in-depth knowledge of our experts along with an example. Let’s get started.

What Is EMA: Overview

EMA, known as Exponential Moving Average, is one of the essential pillars in the trading sector. It holds the importance of technical indicators that indicate the change in security and asset prices in a specific period.

EMA tells us about the future trends by looking at the past prices of securities and assets. In this way, we can get more benefits from our holdings in cryptocurrencies and trading. Due to this behavior, they are also called lag indicators.

Saying that, it predicts the future prices won’t be doing justice with its meaning. They are beneficial only for highlighting the trends by following the past stock prices. So, we can say that it puts significance and more significant weight on the data points of recent dates.

What Is EMA In the Trading Community?

As we have mentioned in the overview, the Exponential Moving Average, in trading, tells us about the price behavior of assets over a specific period. It provides many advantages to traders as they come to know about their trading journey.

The EMA emphasizes more weight on the price data rather than following the earlier trends in the trading. Due to this, the EMA is more sensitive towards the price data change in the trading. So, this way, you can easily understand in which direction the price may move next.

If you analyze the volatile markets, then the higher current price data weight will become helpful for you. It is very beneficial to check the recent swings and trends on the specific price charts to get an advantage in trading platforms.

Due to identifying the trends, there will be less lag because EMA will give you a price changes graph quickly. So, the EMA strategy works as a bar of gold for the traders if they are looking for short-term benefits. Try to learn it if you are on the day-trading track.

Example of EMA

Below present is a chart of Apple Stock Prices. The chart is showing six months’ data. Each candlestick is indicating one trading day with ups and downs in the stock prices. Each month has 21 trading days; therefore, there are 21 days mentioned in the screenshot.

Coming to the candlesticks, if you are new in trading, then the green candlesticks indicate a rise in the apple stock. At the same time, the red ones are the signs of prices down in the apple stocks each day. So, from now onwards, I am sure you can quickly check the stock values.

You can also see the orange lines below the candlesticks. Those are the EMA lines. These lines indicate the upward price trend from July 2019 to January 2020. You can see that the EMA lines are close to a stock price that tells us its volatility. You can use it for entry and exit points.

Importance of EMA In Bitcoin Trading

EMA Indicator is one of the most critical factors in bitcoin trading. If you understand it completely, then it will become very beneficial for your bitcoin trading. With EMA crypto, you can monitor the price changes trends of your desired cryptocurrency.

If the graph is moving upwards, you can expect an increase in the price and its weightage in the market. On the other hand, if the graph is going downwards, then the trend is going downward, and you can say it is the right time to enter the market as the graph is going down.

If the average trading price of the bitcoin cryptocurrency is higher, then its trend is going upward and vice versa. So, if you are going to enter into bitcoin trading, try to learn the moving averages first. Otherwise, you may end up at a loss.

How to Use EMA In Crypto Trading

For trading signals and analysis, using moving averages is very beneficial. If you are going for the analysis, then all MA will highlight the trends in the trading industry. If the stock price will be above the MA, it indicates that the price is trading above its average value.

On the other hand, if you notice a price below the MA, its trading price will be lower than the average price. With this, you can analyze the uptrend and downtrend in the trading industry.

The increase in price from the moving averages indicates that the trading stock is building its strong roots from the past times. Whereas if the price goes down, then it is getting weaker in the industry. But no one can be 100% sure about the exact price at the closing time.

So, if you are new in this industry and want to play and win big, you need to learn all trading concepts of the crypto industry from A to Z. You can grasp everything from different courses provided for free on various platforms like Udemy, etc. What are you waiting for? Search the topic and start learning without paying a fee.

Applications of EMA

There are two main applications of EMA in the trading industry. We are going to put light on both of them.

Highlight the Trends

The primary function of the EMA in the trading industry is identifying and highlighting the price trends of the assets. A high value of the EMA indicates the increase in stock prices and vice versa. If you understand it correctly, then you can play big in the trading industry.

Support and Resistance Bands

The EMA, along with other moving averages, works as a support & resistance level for price fluctuations. You can also call them the floors. The floors will indicate the graph set that may be affected while falling the uptrends.

Both these applications are vital in bitcoin trading and other cryptocurrencies tradings. If you don’t want to lose your investment, then don’t go blindly. Follow a set of rules, including EMA and other moving averages. After that, put investment in the stocks or other trading channels.

Without knowing the basic terms, you only win “leakage of your investment.” It may be wrong if you have good luck. But good luck doesn’t always go in one direction.

Advantages of EMA

The EMA moving average holds greater importance in the trading industry. Its main advantage is its more weight towards the recent price changes. Therefore, it gives data quickly whenever there is a change in the price.

EMA is very beneficial if you love to do day trading because its graph gives small interval data. So, if you want to get good intraday results, then learning EMA is essential.

Disadvantages of EMA

As it gives small data sets data, it is more vulnerable to false data signals. Using it for long-term trading won’t be fruitful for your investment. You can lose a lot of money in long-term trading. Therefore, don’t go with your mind. Always go with the statistics.

Bottom Line: What Is EMA

So, after reading the whole article, we hope all the points related to “What is EMA” and its importance in the trading industry are now clear. Learning it from scratch and then implementing it in your investment will give you tons of benefits.

In addition, when you go into bitcoin trading without learning basic trading concepts, you will only lose money. If you want to use EMA for your future trading, go for it, and don’t forget to share your experience with us.