Exponential moving average (EMA ) is a technical analysis indicator used by traders /investors to identify upward or downward trend direction of securities.
Unlike SMA, EMA gives more importance to data that is more recent. Because of this EMA follows prices on the chart more closely than a SMA.
Psychology of Exponential moving average indicator is that it helps a trader understand the general direction of the trend. A rising EMA line on the chart will support the price move encouraging traders to participate and falling EMA line on the chart will provide resistance to the price move means traders will be lenient to sell.
Exponential moving average is available as an indicator on charting tools like TradingView.On the price chart,d irection of the EMA line will indicate whether the security is in uptrend, downtrend or ranging.
Traders/Investors simply apply this EMA indicator to a chart and derive trend direction.
After applying the Exponential moving average indicator, if the EMA line is moving down consistently then it indicates downtrend and vice-versa.