EMA 50 and EMA 200: What the Two Moving Averages Tell You

What an exponential moving average is

A moving average smooths price by averaging the last N closes, so the trend shows through the noise of single sessions. A simple moving average (SMA) weighs every close in its window equally. An exponential moving average (EMA) weighs the most recent close most and lets older closes fade, so it turns sooner when the trend changes and sits closer to price.

The arithmetic is one line, run once per bar:

EMA(t) = α × P(t) + (1 − α) × EMA(t − 1), with α = 2 / (N + 1)

For N = 50, α is about 0.039: each new close carries roughly 4% of the value and the previous average about 96%. For N = 200, α is about 0.01: each close carries under 1%. That is the whole difference between the two lines. The 50 is the fast average and the 200 the slow one, and neither needs a full window of history to start, only a first value to build from.

Both averages have the same average age of data, about (N − 1) / 2 bars, so a 200 EMA is centred roughly 100 bars back. The EMA is not less lagged than the SMA on average; it is more responsive at the front and more drawn out at the back.

Why 50 and 200

On a daily chart, 50 bars is about ten trading weeks, a quarter of a year, and 200 bars is about forty weeks, most of a year. The 200-day average is the most watched trend line in equities: fund managers quote it, breadth measures count how many stocks sit above it, and enough orders are placed around it that it tends to matter whether or not it should.

The same bar counts cover very different spans on intraday charts, which is the first thing to check before comparing readings:

On a 24-hour market such as a currency pair or a futures contract, 50 four-hour bars is a little over eight days. On a stock that trades six and a half hours a day, the same 50 bars stretch across about five weeks of sessions. The number on the chart is the same; the span of time it summarises is not.

Golden cross and death cross

A golden cross is the 50 EMA crossing above the 200 EMA. A death cross is the 50 crossing below it. The fast average can only overtake the slow one after price has been rising for long enough to pull it up, so a cross is a confirmation that a trend has been in place for weeks, not a prediction that it will start.

That lag is the point and the limit. Because a cross prints late, it filters out most short countertrend moves, which is why the pair is useful as a regime filter: price above both lines with the 50 above the 200 is an uptrend; price below both with the 50 below the 200 is a downtrend; anything in between is contested. Used as a timing signal on its own, the same lag means many crosses on an index arrive close to the end of the move that caused them, and in a sideways market the two lines cross back and forth and lose on each turn.

Two things improve the read. The slope of the 200 says more than its level: a rising 200 under price is an uptrend being tested; a falling 200 over price is a downtrend being tested. And the distance between price and the 200, in percent or in units of average daily range, says how stretched the move is. An index more than ten percent above its 200-day average has historically spent most of the following months returning towards it rather than extending.

The EMA touch

An EMA touch is price coming back to the average after having moved away from it. In a trend the 50 is the first place where the side that has been winning tends to return: in an uptrend, pullbacks to a rising 50 are where buyers who missed the move look to enter, and the average becomes a level because enough people treat it as one. A touch of the 200 is a bigger test of the trend itself.

Reading a touch takes four checks:

• The trend above it. A touch of the 50 on a four-hour chart means more when the daily chart's 50 is rising and price is above its 200.
• The slope of the line being touched. A flat average is a level in a range, not a trend being tested.
• The close. Price can pierce an average during a bar and close back on the right side of it; the close is what the average is built from.
• The stretch before the touch. A return to the average after a long run away from it is a pullback; a return after a short run is a trend losing pace.

A touch that fails, where price closes through the average and stays there, is itself information: the side that had been defending the level has stopped.

On the desk

The screener's EMA Touch boards map every asset the desk analyses, and every S&P 500 member by sector, against their 50 and 200 EMAs on 30-minute, one-hour, four-hour and daily charts, so a touch on any of them is listed rather than hunted for. Every chart in the product draws the two averages, and the symbol pages add the distance from each one to the current price.