what does the ema tell you 
the 12 and 26 day exponential moving averages emas are often the most quoted and analyzed short term averages the 12 and 26 day are used to create indicators like the moving average convergence divergence macd and the percentage price oscillator ppo 56 in general the 50 and 200 day emas are used as indicators for long term trends 3 when a stock price crosses its 200 day moving average it is a technical signal that a reversal has occurred traders who employ technical analysis find moving averages very useful and insightful when applied correctly however they also realize that these signals can create havoc when used improperly or misinterpreted all the moving averages commonly used in technical analysis are lagging indicators consequently the conclusions drawn from applying a moving average to a particular market chart should be to confirm a market move or indicate its strength the optimal time to enter the market often passes before a moving average shows that the trend has changed an ema does serve to alleviate the negative impact of lags to some extent because the ema calculation places more weight on the latest data it hugs the price action a bit more tightly and reacts more quickly this is desirable when an ema is used to derive a trading entry signal like all moving average indicators emas are much better suited for trending markets when the market is in a strong and sustained uptrend the ema indicator line will also show an uptrend and vice versa for a downtrend a vigilant trader will pay attention to both the direction of the ema line and the relation of the rate of change from one bar to the next for example suppose the price action of a strong uptrend begins to flatten and reverse from an opportunity cost point of view it might be time to switch to a more bullish investment examples of how to use the emaemas are commonly used in conjunction with other indicators to confirm significant market moves and to gauge their validity for traders who trade intraday and fast moving markets the ema is more applicable quite often traders use emas to determine a trading bias if an ema on a daily chart shows a strong upward trend an intraday trader s strategy may be to trade only on the long side the difference between ema and smathe major difference between an ema and an sma is the sensitivity each one shows to changes in the data used in its calculation more specifically the ema gives higher weights to recent prices while the sma assigns equal weights to all values the two averages are similar because they are interpreted in the same manner and are both commonly used by technical traders to smooth out price fluctuations since emas place a higher weighting on recent data than on older data they are more responsive to the latest price changes than smas that makes the results from emas more timely and explains why they are preferred by many traders 7limitations of the emait is unclear whether or not more emphasis should be placed on the most recent days in the time period many traders believe that new data better reflects the current trend of the security at the same time others feel that overweighting recent dates creates a bias that leads to more false alarms similarly the ema relies wholly on historical data many economists believe that markets are efficient which means that current market prices already reflect all available information if markets are indeed efficient using historical data should tell us nothing about the future direction of asset prices 