Crypto glossary
Exponential moving average (EMA)
An exponential moving average (EMA) is a moving average that gives more weight to recent prices, so it reacts faster to new moves than a simple average.
A simple moving average gives every price in its window equal weight. An EMA applies a smoothing factor that makes each new price count more and older prices fade gradually, so the line turns sooner when the trend changes. It is defined by its period: a 21-period EMA on a daily chart weights roughly the last three weeks of closes, with the newest ones counting most.
EMAs are the building blocks of other indicators, including the MACD, and are widely used on their own. Common settings in crypto include the 9 and 21 EMAs for short-term momentum, the 50 and 200 EMAs for trend, and the 20-week EMA paired with the 21-week EMA in what traders call the bull market support band for bitcoin.
The speed that makes the EMA useful also makes it noisier. In choppy markets it produces more false crossovers than a simple average, and like all moving averages it follows price rather than predicting it.
Example
A trader watches BTC's 21-day EMA during an uptrend. Each pullback finds buyers near the line until a daily close well below it, followed by a lower high, signals that momentum has faded.