Intraday Trading : Exp. Moving Avg.

This page last changed on Aug 22, 2008 by iank@bearcave.com.

Exponential Moving Average (EMA)

M = window size
p_t is the tick price at time t
m is the EMA time series

a = 2 / (M+1) Example: for M³⁰⁰, a = 2 / (300 +1)

m_t+1 = (a * p_t ) + (1 - a) * m_t

Some plots for M = 300 are shown below:

Detail 1

Detail 2

A few notes

A good profit on an intra-day trade would be 50 basis points (bps). For a stock like GS (on July 10) that is selling for 170 a share, 50 bps = 170 * 0.005 = $0.85 profit per share.

There is a lot of lag in the plots above. Ed was having me use a window of seven ticks to recognize a turn around, which is clearly not correct for a signal with this amount of smoothness.

The plots below are for M = 50

Attachments:

exp_moving_avg_detail.jpg (image/jpeg)

exp_moving_avg_detail2.jpg (image/jpeg)

exp_moving_avg.jpg (image/jpeg)

ema_50_detail2.png (image/png)

ema_50_detail1.png (image/png)

ema_50.jpg (image/jpeg)