OPEN-SOURCE SCRIPT
[Elite Algo Modded] test setup
Exponential Moving Average (EMA) is a technical analysis indicator used in financial markets to smooth out price data, giving more weight to recent prices. It's particularly helpful for identifying trends and trading signals in algorithmic trading.
Steps to Set Up an EMA
1. Understand the Formula: The EMA calculation involves:
EMA_t = (P_t × Multiplier) + (EMA_(t-1) × (1 − Multiplier)) Where:
: Current EMA
: Current price
: Number of periods
2. Select the Period:
Common choices are 9, 20, 50, or 200 periods based on the trading strategy.
Shorter periods (e.g., 9 or 12) react quickly to price changes.
Longer periods (e.g., 50 or 200) provide a smoother, less sensitive curve.
3. Input the Data:
Gather price data, typically closing prices.
4. Calculate the Multiplier:
Use the formula . For example, for a 10-period EMA: .
5. Calculate the Initial EMA:
Use a simple moving average (SMA) for the first period's EMA: .
6. Iterate for Subsequent EMA Values:
Apply the EMA formula recursively for each subsequent price.
7. Visualize the EMA:
Plot the EMA line on a chart to compare it with price action or other indicators.
Applications in Trading
Trend Identification:
Uptrend: Price stays above the EMA.
Downtrend: Price stays below the EMA.
Crossover Signals:
Bullish Signal: A shorter-period EMA crosses above a longer-period EMA.
Bearish Signal: A shorter-period EMA crosses below a longer-period EMA.
Steps to Set Up an EMA
1. Understand the Formula: The EMA calculation involves:
EMA_t = (P_t × Multiplier) + (EMA_(t-1) × (1 − Multiplier)) Where:
: Current EMA
: Current price
: Number of periods
2. Select the Period:
Common choices are 9, 20, 50, or 200 periods based on the trading strategy.
Shorter periods (e.g., 9 or 12) react quickly to price changes.
Longer periods (e.g., 50 or 200) provide a smoother, less sensitive curve.
3. Input the Data:
Gather price data, typically closing prices.
4. Calculate the Multiplier:
Use the formula . For example, for a 10-period EMA: .
5. Calculate the Initial EMA:
Use a simple moving average (SMA) for the first period's EMA: .
6. Iterate for Subsequent EMA Values:
Apply the EMA formula recursively for each subsequent price.
7. Visualize the EMA:
Plot the EMA line on a chart to compare it with price action or other indicators.
Applications in Trading
Trend Identification:
Uptrend: Price stays above the EMA.
Downtrend: Price stays below the EMA.
Crossover Signals:
Bullish Signal: A shorter-period EMA crosses above a longer-period EMA.
Bearish Signal: A shorter-period EMA crosses below a longer-period EMA.
Open-source script
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in publication is governed by House rules. You can favorite it to use it on a chart.
Want to use this script on a chart?
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.