As we talked about in the last less cashback forex, the Forexrebateforyou Forex rebate for you highestrebateforex trend is able to be distorted by the huge fluctuations in prices in the short term Lets look at the EUR/USD 5 day moving average exchange rate in the past 5 days of the closing price are: rebateforexindonesia getforexrebate: 1.3172 Day 2: 1.3231 Day 3: 1.3164 Day 4. 1.3186 Day 5: 1.3293 The simple moving average is calculated as follows: (1.3172+1.3231+1.3164+1.3186+1.3293)/5=1.3209 Pretty simple, huh? (www.waihuibang.com/fxschool/) So what if an unexpected event on the second day causes the EUR/USD to close lower and at 1.3000 Lets look at the impact this movement has on the EUR/USD 5-day simple moving average Day 1: 1.3172 Day 2: 1.3000 Day 3: 1.3164 Day 4. 1.3186 Day 5: 1.3293 The simple moving average calculation will become: (1.3172+1.3000+1.3164+1.3186+1.3293)/5=1.3163 This simple moving average calculation will be much lower than before and may give you the impression that the price is actually moving lower, when in fact, the price on the second day We should point out that simple moving averages can sometimes be overly simplistic and if you can filter out these short-term excesses, then you wont come to the wrong conclusion that exponential moving averages are the way to go! The exponential moving average (EMA) gives more weight to the most recent periods In the example we gave before, the exponential moving average would give higher weight to the price on the most recent days, which would be the third, fourth and fifth day This means that the huge price swings on the second day do not have as big an impact on the movement of the moving average as we would have calculated through the simple moving average If you notice this. Lets take a look at the 4-hour chart of USD/JPY and see how the SMA and EMA move differently on the same graph. Note that the red curve (30EMA) is closer to the price action than the blue line (30SMA). Because the EMA puts more emphasis on recent price action, recent trader behavior is far more important than what they did last week or last month
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