In this lesson
- compute an EMA step by step and understand its weight of 2 / (N + 1)
- compare SMA, EMA and WMA with the same period on one chart
- switch EMA and WMA on in Binance
The simple average gives every candle the same vote. But yesterday usually matters to you more than last month. EMA and WMA therefore give new candles more weight. They are like a friend who mostly remembers the latest gossip – quick to know what is going on, but sometimes panicking for nothing.
EMA: a bit of the way every day#
The EMA (exponential average) is not computed from a window but from its previous value. Every day it takes a step towards the new close – exactly 2 / (N + 1) of the way:
- EMA 7: a step of 2 / 8 = 0.25 – a quarter of the way to the new price,
- EMA 25: a step of 2 / 26 ≈ 0.077,
- EMA 99: a step of 2 / 100 = 0.02.
Older candles never drop out of the calculation completely; their influence just fades fast. The first EMA value is a plain average of the first N candles. Go through it:
EMA 7 (yellow). Highlighted candles = the ones the current value is computed from.
Mar 1, 2024: EMA moves 0.25 of the way to the new price: 57,034.75 + 0.25 × (62,387.9 − 57,034.75) = 58,373.04.
WMA: weights like stairs#
The WMA (weighted average) is computed from a window like the SMA, but the candles in it have weights like stairs: the newest N, the one before N − 1 … the oldest 1. For WMA 7 the weights add up to 28, so the newest candle makes 7 / 28 = 25% of the result and the oldest only 1 / 28 ≈ 3.6%. Nothing outside the window has any influence.
Three averages, one period#
Here are SMA, EMA and WMA with the same period of 25 on one chart:
- SMA 25
- EMA 25
- WMA 25
The difference is a few days – but in both directions. EMA and WMA show a turn that comes sooner, and also a turn that never comes. Move the EMA period and watch how often the price crosses it:
The price crossed the line 35×. The common default setting – try moving the slider both ways.
On Binance#
Original mode → indicator icon → Main Indicator → the EMA and WMA rows. Like MA, both have up to six lines with default lengths of 7, 25 and 99. In the video MA is switched off and EMA and WMA are switched on:
Faster does not mean more accurate
EMA and WMA know nothing more about the market than SMA. They just split the weight differently among the same past prices. The faster reaction is paid for with more false signals – especially in a market without a trend.
Common myths#
- "EMA predicts a turn." EMA only reacts to a turn sooner – after it, not before it.
- "EMA 25 and SMA 25 are completely different indicators." Most of the time they run close together; they differ mainly at turns.
- "WMA is the same as EMA." WMA forgets everything outside its window; EMA remembers the whole history with fading weight.
Summary
- EMA takes a step of 2 / (N + 1) of the way to the new price every day; older candles never fully drop out.
- WMA weighs the candles in its window N, N − 1 … 1; nothing outside the window counts.
- Both react sooner than SMA – to real and to false turns.
- On Binance: Original → indicator icon → Main Indicator → EMA and WMA (default 7, 25, 99).