An exponential (or exponentially weighted) moving average is calculated by applying a percentage of today's closing price to yesterday's moving average value. An exponential moving average, sometimes also called an exponentially weighted moving average, applies weighting factors which decrease exponentially. The weighting for each day decreases by a factor, or percentage, on the one before it.

For example, to calculate a 9% exponential moving average of IBM: First, we would take today's closing price and multiply it by 9%. We would then add this product to the value of yesterday's moving average multiplied by 91% (100% - 9% = 91%).

m.a.= ((today's close) x 0.09)+((yesterday's m.a.) x 0.91)

The formula for converting days to exponential percentages is as follows:

exponential percentage = 2/time period+1

For example, to calculate a 10-day exponential moving average, you would use 0.18:

0.18=2/10+1

To convert an exponential percentage into time periods, you would use the following formula:

time periods = 2/percentage -1

Using our previous example, we can check to see that a 0.18 exponential moving average is actually a 10-day average.

10 = 2/0.18 -1

The longer the period for which you calculate the moving average, the less of an impact the exponential weighting has on the most recent data. Exponential moving averages react faster to changes in the underlying market price than simple moving averages as the graph below (showing 10 period moving averages) illustrates.