If you want to predict the future directional movement by having an eye on the previous market behavior, then you must definitely use a moving average as there is no better way than this. Hence, here you will get to know about the exponential moving averages. The Moving average indicator filters the noise from casual price variation. This also helps to smooth out the price action of the stocks. Generally, moving average indicator is divided into two categories. One is simply moving average and other is exponential moving average.
The modification of moving average is known as exponential moving average. None of us can differentiate between the two when they are represented on charts. On the other hand, despite there is no difference in the appearance of the indicators on the chart, there is the difference in the method of calculation of the simple moving average and the exponential moving average. Calculation of exponential moving average is based on the recent price action.
Analysts use exponential moving average in two different ways, while trading. With the help of two different periods exponential moving average cross for generating signals of buying and selling you can predict the market. Otherwise, by using single exponential moving average in the form of dynamic support and resistance zone you can predict the market.
One simple way of using exponential moving average is by implementing two different periods on a chart and then finds the faster period, which crosses above the slower period.
If you get to know that the EMA is crossing above the slower period EMA then it is a signal of bullish momentum and vice versa. More than any other type of moving average, the proficient traders use the exponential moving average. Thus, we can say the exponential moving average is one of the very powerful tools, which is used to smooth out the price action of the stocks.