Moving averages (EMA)

Understand the exponential moving average and the background trend it reveals in the app.

The essentials

A moving average smooths the price by computing its average over a given period, letting you see the trend without being distracted by every single candle. The exponential moving average, or EMA (Exponential Moving Average), gives more weight to recent prices than to older ones, so it reacts faster than a simple moving average to changes in direction.

In the app, two EMAs act as reference points for the background trend: the EMA50, calculated over 50 periods, and the EMA200, calculated over 200 periods. The EMA50 tracks the price more closely and represents a medium-term trend, while the EMA200 is much slower and represents the background trend, the one that structures the market over the long run.

EMA50 above the EMA200: the background trend is bullish.
EMA50 below the EMA200: the background trend is bearish.
The wider the gap between the two EMAs, the stronger the trend.

In the app, the EMA confluence signal is bullish when the EMA50 is above the EMA200, and bearish when it is below: it is the relative position of the two moving averages that matters, not their absolute value.

A bullish background trend does not mean the price will rise immediately: it describes a context, not a prediction. Never make a decision on this signal alone.

Going further: golden cross and death cross

The crossover of the two EMAs is an event closely watched by many investors. It is called a golden cross when the EMA50 crosses the EMA200 from below and moves above it: this marks a shift of the background trend toward bullish. Conversely, a death cross occurs when the EMA50 crosses the EMA200 from above and moves below it, signaling a shift toward bearish.

Golden cross: the EMA50 moves above the EMA200, a signal of a trend shift toward bullish.
Death cross: the EMA50 moves below the EMA200, a signal of a trend shift toward bearish.

These crossovers are inherently late signals, since they rely on averages that already incorporate dozens or hundreds of periods of price. They confirm a trend change that is already underway rather than anticipating it.

Expert: EMA versus SMA, and the lag of moving averages

The simple moving average (SMA) gives equal weight to every price in the period considered, whereas the EMA weights the most recent prices more heavily through an exponential smoothing factor. The result: for the same period, the EMA hugs the current price a bit more closely and reacts faster to a change in direction than the SMA.

All moving averages remain lagging indicators, however: they compute an average of past data, so they follow the price rather than anticipate it. At turning points, a moving average always reacts late, which can mean missing the very start of a move or, conversely, keeping a trend signal alive after the market has already turned.