One, who wants to predict the future directional movement by having an eye on the previous market behavior, must definitely use a Moving Average as there is no better way than this. So here you will get to know about the exponential moving averages. Moving average indicator filters the noise from casual price variation. It helps to smooth out the price action of the stocks. Broadly, moving average indicator is divided into two categories. They are simply moving average and exponential moving average.
Whether you must use exponential moving average or plain moving average indicator?
The exponential moving average is nothing but a modification of moving average. No trader or technical analyst can differentiate between the two when they are represented on charts. However, 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.
As well know that to generate the accurate BTST trading tips, the trader must have an acknowledgment of recent price data rather than having the old previous price of the stock. The evaluation of exponential moving average is based on the recent price action.
Traders use exponential moving average in two different ways, while trading. By using two different periods exponential moving average cross for generating signals of buying and selling. Alternatively, by using single exponential moving average in the form of dynamic support and resistance zone.
The first option 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.
When traders observe 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.
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