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You're almost there, you just need to know the formula for the Smoothing
Constant, which is 2 / (Length + 1). That's where the period length comes
into play, days, bars or whatever.
Andrew
----- Original Message -----
From: "Paul Altman" <paulha@xxxxxxxxxxxxx>
To: <omega-list@xxxxxxxxxx>
Sent: Tuesday, September 26, 2000 10:14 PM
Subject: Exponential moving average
> Could someone please explain to me what an exponential moving average is.
>
> Here's what I've always assumed it is, and how I've always used it:
>
> SC = Smoothing Constant
>
> Today's EMA= ((Today's price) * SC) + ((Yesterday's EMA) * (1 - SC))
>
> If the above is correct, then why do people talk of a "40-day" ema? The
> only variable I see here as an input is the smoothing constant, which
> usually seems to be useful in a range from ~0.1 to ~0.25.
>
> Since # days is not an input, what's everyone talking about when they
> mention a specific lookback period? Seems to me that Today's EMA value
> includes a molecule or two of pricing that occurred even 10 years
> ago. I.e., by it's very nature, an EMA includes all historical prices
> before it, although the distant past ones are under-weighted to the point
> of virtual non-existence.
>
> I must have the formula wrong, though the formula I use is simple to use
> and seems to work just fine when I want a moving average that's more
> weighted to recent events than to ancient ones.
>
> -Paul
>
>
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