Exponential Moving Average (EMA) is a weighted approach derived from Simple Moving Average (SMA). EMA gives more weight to more recent price data with the core concept that the more recent the data is, the higher value it should have. In contrast, SMA gives equal weight throughout the averages regardless of time relevancy. Using a longer time period for moving averages indicate long term trends, short time frame periods indicates the short term trends.
A rising EMA suggests an upward trend and a falling MA indicates a downtrend. EMA Crossing is a crossover signal is created when two different time period EMAs crossover in a chart. A bullish crossover happens when the short-term MA (blue) crosses above a long-term one (red), suggesting the start of an upward trend. In contrast, a bearish crossover happens when a short-term MA crosses below a long-term moving average, which indicates the beginning of a downtrend.
SMA = ( Sum (Price, n) ) / n
EMA = ( P - EMAp ) * K + EMAp
P = Price
EMAp = the Exponential moving Average for the previous period
K = 2 / (n + 1), the smoothing constant
n = Time Period