exponential moving average
Technical Indicators

Exponential Moving Average

Bago kayo magpatuloy sa pagbabasa I will first require you to read this blogMOVING AVERAGE.  I will also require you to watch this video.

By now, I assume that you have read the blog and watched the video ay may basic understanding na kayo sa Moving Average or sa Simple Moving Average.

ANO NGA BA ANG EXPONENTIAL MOVING AVERAGE?

“ahh basta!”

“Di mo na kailangan alamin meaning niyan basta alam mo ang gamit”

“linya yan na makikita sa chart”

“mas mabilis konti yan sa MA”

Hahaha! I bet yan ang explanation/excuses na lagi mo naririnig. Well, I do know my craft. Definitely, I do know Exponential Moving Average. Today, ituturo ko sa inyo. Hihimayin natin kung ano ba talaga ito.

THE EXPONENTIAL MOVING AVERAGE

It is fairly difficult to provide a satisfactory exponential moving average definition without getting into the specifics of the calculations involved. A broad exponential moving average definition is: a smoothing technique arrived at by adding a portion of the current price, to a portion of the value of the previous moving average.

UHHHMMMM....HA?

Hindi maliwanag noh? Normal lang yan. Himayin natin. Magsimula tayo sa formula.

exponential moving average formula
exponential moving average explained

RELAX, SISIMPLEHAN NATIN

Para madali ang gagamitin natin na period or time is 5 days.

Since magcacalculate pa lang tayo ng EMA meaning wala pa tayo EMA ang gagamitin natin muna is Simple Moving Average as our first EMA. Let us take MAC for example.

MAC Last price

Kumuha tayo ng limang magkakasunod na closing price (current price) ni MAC. Kunin natin mula Nov 13, 2019 until Nov 19, 2019.

MAC Price

Kung nabasa at napanood ninyo ang sinabe ko na required ninyong basahin/panoorin sa taas, alam ninyo paano kunin ang Moving Average.

     If MA5(5-day moving average)= Day1+Day2+Day3+Day4+Day5/5

    Then 93.9/5=18.78

    18.78 ang gagawin natin na first EMA.

Here is the formula:

 

exponential movingformula average explained
exponential moving average explained

RELAX LANG HIHIMAYIN NATIN YAN

FINDING the value of K.

Unahin nating hanapin yung K.

Ano ang K?

Ang K yan ang weighting multiplier or smoothing constant. Weighting multiplier or smoothing constant is what emphasizes the most recent data, and its value depends on the time period of your Exponential Moving Average.

Ang formula pagkuha ng K is this:

K= 2/(N+1)

exponential moving average explained

Ang N is ang number of days. Sinabe natin kanina na 5 ang number ng days. 5 na araw na prices ni MAC ang kinuha natin. N=5. 

k=2/(5+1)

k=2/(5+1)

k=0.33 0r 33%

TIMEOUT MUNA (WOAH)

Yung 5 na number ng days ay 33% ang multiplier. Eh yung 10 na number of days?

k=2/(10+1)

k=0.18 or 18%

GETS NINYO?(WOAH)

If hindi pa, ito yun. Yung 10 na EMA ay may weight lang na 18% while ang 5 na EMA may weight na 33% (mas mabigat) meaning mas pinahahalagahan ni EMA ang recent price

LET'S MAKE IT CLEARER.

Kunyare may hawak ka na stock at ang pangalan ng stock na yun is SWITCH with a stock code BO.

Kunin natin ang 10-day Moving Average ng stock na to.

Day 1: 1.61
Day 2: 1.62
Day 3: 1.61
Day 4: 1.64
Day 5: 1.63
Day 6: 1.62
Day 7: 1.63
Day 8: 1.62
Day 9: 1.61
Day 10: 1.61

Simple Moving Average for 10 days (MA 10) =day1+day2+day3+day4+day5+day6+day7+day8+day9+day10/10

MA=16.2/10

MA=1.62

Let’s say sa Day 3 nagkaroon ng fake news na naka apekto sa BO at bumagsak that day ang price sa 1.50 dahil nagbentahan. The next day nakarecover naman.

Tingnan natin mangyayare sa 10-day moving average.

Day 1: 1.61
Day 2: 1.62
Day 3: 1.50 (bumagsak dahil na fake news)
Day 4: 1.64
Day 5: 1.63
Day 6: 1.62
Day 7: 1.63
Day 8: 1.62
Day 9: 1.61
Day 10: 1.61

Compute natin ulit yung MA 10 and see and mangyayare. 

MA=day1+day2+day3+day4+day5+day6+day7+day8+day9+day10/10

MA=16.09/10

MA=1.609

Yung resulta is lower. The result of the simple moving average would be a lot lower and it would give you the notion that the price was actually going down, when in reality, Day 3 was just a one-time event caused by the fake news.

Sa EMA naman hindi ganyan kasi mas binibigyan ni EMA bigat ang recent price.

BALIK SA "K"

Ano ang K? Ang K yan ang weighting multiplier or smoothing constant.

Weighting multiplier or smoothing constant is what emphasizes the most recent data, and its value depends on the time period of your Exponential Moving Average.

Ang formula pagkuha ng K is this: K= 2/(N+1)

exponential moving average explained

Ang N is ang number of days. Sinabe natin kanina na 5 ang number ng days. 5 na araw na prices ni MAC ang kinuha natin.

k=2/(5+1)

k=2/6

k=0.33 0r 33% (Kung nais mo yabangan mga kaibigan mo na trader instead 5-day EMA sabihin mo 33%EMA para malito sila. Same lang naman yun)

So may K na tayo. Try natin kunin ang EMA.

NOW LET'S FIND EMA.

18.78 ang ginawa natin na first EMA sa taas remember? (scroll up)

Since 18.78 represents a 5-day Moving Average ni MAC, sa 6th day tayo kukuha ng price which is 18.5. (Refer sa picture below, see Nov.20, 2019, 6th day is 18.50)

exponential moving average explained

EMA=Price today x K + EMA yesterday x (1-K)

EMA= 18.5 x 0.33+18.78 x (1-0.33)

EMA=6.105 + 12.5826

EMA=18.6876 or 18.7

If gusto ninyo madali na formula pwede rin ito:

EMA = (closing price – previous day’s EMA) × smoothing constant as a decimal + previous day’s EMA

EMA= (18.5-18.78) x 0.33 + 18.78

EMA=18.6876 or 18.7

exponential moving average explained

GETTING THE MOST ACCURATE EMA

Since example lang ang ginawa natin at nagsimula tayo sa Nov 13, 2019 ay may konting difference kasi ang EMA dapat magsisimula ka magcalculate sa simula talaga na price ng stock. That means you have several hundred calculations yet to do – because you have to calculate one day at a time. Obviously, this is much faster and easier with a computer program or script to crunch the numbers for you.

Presuming, you really want the most accurate EMA possible, you should start your calculations with data from the very first day the stock was available.

Although that’s often impractical, it also reinforces the fact that EMAs are used to reflect and analyze trends – so if you graphed the EMA starting from day one of the stock you’d see how, after a lag period, the graph curve shifts to follow the actual stock prices. If you also draw an SMA for the same time period on the same graph, you’d also see that an EMA adjusts to changes in price more quickly than an SMA does.

HERE IS THE MAIN POINT.

exponential moving average explained
exponential moving average explained
exponential moving average explained
exponential moving average explained

See the difference?

By now, makikita mo ang difference. It looks like mas mabilis mag react si EMA kesa kay MA or mas dikit si EMA sa price kesa ky MA. The reason for that is binibigyan ni EMA bigat ang recent price compared sa lumang price.

Again, look at the charts at balikan ninyo ang part ng blog na to sa taas na may (WOAH) and it will all makes sense. Kapag MA10 ang gamit mo at sa day 3 ay bumagsak masyado ang price affected nito ng sobra ang MA mo kasi add mo lahat ng days at divide sa 10. Kapag EMA10 naman gamit mo kahit pa bumagsak sa day 3 ang price hindi niya gaanong affected ang EMA kasi mas binibigyan ni EMA bigat or importance ang recent prices.

In using both indicators as entry sa breakout ng resistance.

MA is slow kasi mean kinukuha niya. EMA is fast kasi mas mabigat ang recent price.

  • MA late entry ka but safe sa fake outs.
  • EMA good entry ka or fast entry ka but prone sa fake outs.

For exit naman.

  • MA is slow late ka exit but hindi prone sa fake outs.
  • EMA is fast but prone sa fake out.

Which one is better?

ALMA!

You see, I did not learn these indicators like most of new traders now. Far from the usual, I learned them by solving their formula and plotting them on a graphing paper. If hindi mo naiintindihan ang indicator both gamit niya at origin at basta mo na lang e tweak ay kalimitan panget ang kinalalabasan.

For instance, if you are using 50, 100 or 200 MA. May iba pa gumagamit ng MA 59. Gamit mo lang siya kasi nakita mo sa mga post ng iba. Lets say na 45 days ago bumagsak 50% ang stock na ginagamitan mo 59 or 100 MA. Di mo alam na affected pa rin ng pagbagsak na yun ang gamit mo na MA kahit pa sa later part ay umaakyat na ito steady.

Similar with 200 MA,  same with the case ng stock na nag ceiling for 3 days two months ago at ginagamitan mo 200MA. Di mo alam na affected pa rin ang current price ng nangyare na yun two months ago. Kaya kahit bumabagsak na eh hohold ka pa rin kasi di pa nabreak ang MA200. Di mo alam two months ago pala nag ceiling yun tatlong araw kaya ang mean ng 200 days ay mataas. Ang nakikita mo lang is naghohold pa siya sa MA200. The truth is kaya pala nghohold ang MA200 ay dahil two months ago nag ceiling ito tatlong beses.

LET'S MOVE FORWARD.

As you follow me and as you read my blogs at watch my youtube videos, you will eventually see yung pagkakaiba namin ng mga dati mo na finafollow. I will teach you a lot of things.

Right now, marami hate ako kasi nahuhubaran knowledge nila sa trading. I get bashed a lot. Wala na ako masyado care doon kasi at the end of the day I’m doing ok sa trades ko, di ko kailangan magpaseminar, subscriptions or magbenta ng kung anu ano at higit sa lahat nakafocus ako sa paghelp sa traders.

Gradually, I will teach you all the technical indicators. Hihimayin natin yan isa isa. Also, I will make sure na after ninyo ma learn ang turo ko ay mawawalan ng sense magbayad para matuto. Lahat ng indicators dadaanan natin as well as strategies.

After that,  will introduce sa inyo ang QUANTS. Hahaha!

Trust me may magrereklamo kapag ako na nagturo QUANTS at yung tamang pamamaraan at gamit. That is far ahead pa but we will get there.

Happy happy TL Family!

If you want to learn more about stock trading join our Facebook Group called Trader’s Lounge

Our advocacy is sharing ideas, experiences and, knowledge to traders for FREE. We offer free Technical/Fundamental Analysis and Market Psychology learning materials. 

There are available weekly lessons inside. We created different trading strategies like MAMA which made a lot of traders profitable. Other trading strategies include FISHBALL, PAPA, CALMA and more. We want to offer OFW’s, Employees and all Filipino people a chance to learn without paying a cent. 

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21 Comments

  • NOBIS

    Wow, dami ko natutunan especially sa computation lalo na sa pros and cons ng sma at ema. Mas naappreciate ko lalo ang kagandahan mg ALMA at ang ganda ng vision mo Ms. GANDAKOH

  • Arvin Cipriano

    Thanks mam gandah ko super dami ko natutunan sa inyo maraming Salamat po at libre namin nakukuha ang mga itinuturo nyo…

  • zelle solis

    thanks maam ganda 🙂 naintindihan ko tong blog na EMA … habang nagbabasa ako meron ako calculator kinocompute ko talaga para ma absorb ng utak ko ano tamang formula para makuha yung sagot …. more power TL FAMILY ! GODBLESS PO

  • kitbull

    Thank you Mam Ganda!Sa totoo lang po kahit sa paid seminars hindi po sya itinuro. Sama ng loob ko dahil ang laki ng nagastos kaka attend ng seminar before. Madamot sila sa information laging limited ang explanation dahil limited din ang time nila..Sa hotel pa kse nagpapaseminar. Ang alam ko lang dati MA. Hndi ko magets ang EMA at yung ibang family ng moving average.
    God bless you Mam and our TL Family!

  • Joes

    Sa iba direct sa chart while you Ms Gandah may chart na may mismong computation pa. Learned a lot! Stay safe always po❤️

  • josmith mangrobang

    This article is straightforward. I’ve been into stock trading since 2017 and hopefully makakabawi na ako. Thank you so much Gandakoh.

    • Paul Carl

      Madam Gandakoh, burado po lahat ng maling mindset ko about MA at EMA. Salamat po sa additional knowledge! ❤️

      Kinabahan po ako sa #quants pero looking forward po. Hehe. Sana po teacher ko kayo dati sa math.

    • NOBIS

      Wow, dami ko natutunan especially sa computation lalo na sa pros and cons ng sma at ema. Mas naappreciate ko lalo ang kagandahan mg ALMA at ang ganda ng vision mo Ms. GANDAKOH

  • PolarEye

    Parang na mild stroke ako nung sinabi mong Quants ah. Haha Dam,matanong lang ha, meron ka bang math masters degree. Parang napakagaling mo mag explain ng mga ganyan. Napapasimple mo e. Anyways Happy Sunday jan sayo at sa fam mo. Good read. ❤ you at salamat sa pagtuturo

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