Exponential moving average (EMA)
The EMA is a moving average that gives more weight to recent prices. It reacts faster than a simple average to changes in direction.
Its calculation applies a smoothing factor of 2 ÷ (N + 1) to the latest price: on a 20 EMA, the last close accounts for about 9.5% of the value. Older prices gradually lose influence without ever disappearing completely.
More responsive than the SMA, it hugs price more closely in a trend, which makes it a favourite of day traders and swing traders: the 9, 20, 21 or 50 EMA often serve as pullback zones.
The flip side of that speed: more false signals when the market hesitates. The MACD itself is built from two EMAs, the 12 and the 26.