Exponential Moving Average
What It Is:
An exponential moving average (EMA) is a moving average for time-series data which places greater weight on more recent data.
How It Works/Example:
An exponential moving average places exponentially greater weight on data in a time series as the data becomes more recent. For instance, in a 10-day price chart for a given security, the prices on the ninth and tenth days will be weighted more heavily as components of the average.
Why It Matters:
Since an EMA is weighted more heavily on recent data, it is more sensitive to daily price fluctuations. For this reason, instances of high volatility result in volatile moving averages.