What is EMA?
"An exponential moving average (EMA) is a type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. It's also known as the exponentially weighted moving average."
The EMA is a well-known study amongst traders all across the world. It doesn't matter if you're a Day Trader, Swing Trader, Etc. The Exponential Moving Average (EMA) is used to measure the trend in a stock. To put it simply, if it's trending up, then chances are the price of the stock is going to go up and vice versa if It's pointing down.
Why Use the EMA?
As a new trader myself, I've found the EMA very helpful for learning. Keyword here is learning. You can learn so much about the stock itself by looking at the EMA. If It's trending up, whether that's 1 Day, 5 Days, 2 Weeks, 3 Months, Etc. If It's pointing up, then you can use that as an indication of growth. I ONLY invest in stocks that are trending up.
If the stock is trending above the EMA, then your portfolio will grow if you put your money into stocks that are growing. Simple stuff. Where I've gotten into trouble and I'm sure new traders have too is letting your emotions trade. You see a stock growing (Spike in price, Volume, Etc.) and you buy in. Later on, you're taking a loss because you didn't look at the big picture.
The Big Picture
Some things I focus on going into every trade
- Is It Trending above EMA (Long Term)?
- Does it have the Volume to Support the growth?
- Will this trade align with my goals (30% a Month/7.5% a Week)
- Have a Plan (Buy/Sell Point, Stop Loss)
Thanks so much for reading this and if it helps you understand EMA and good trading practices let me know how it's going with you and trading. Remember, I'm new to trading as well. So many things to keep learning.