EMA vs AI: Science Says Old School Beats New Tech for Long-Term Gains

Hey!

Here on NASDUCK, I’m always on the lookout for strategies backed by solid data. Today, we're having a closer look at some staggering numbers from recent research on the Exponential Moving Average (EMA).

TL;DR

Exponential Moving Average (EMA) outperforms other methods for long-term stock predictions. Key points:

• 50-day EMA showed impressive accuracy, with only 4.88% error for Apple stock

• EMA consistently beat other methods across various stocks (AAPL, AMZN, GOOG, TSLA, etc.)

• For long-term predictions, EMA (11.51% error) outperformed AI-based LSTM (26.54% error)

• Use 50-day EMA as your primary tool; calculate daily using the provided formula

• Implement crossover strategies with 50-day and 200-day EMAs for potential buy/sell signals

• EMA works best for stable stocks but is still valuable for volatile ones

• While AI excels in short-term predictions, stick with EMA for long-term forecasts

• Combine EMA with other analyses for a comprehensive investment strategy

EMA Shines in Long-Term Predictions

A study published in Neural Computing and Applications journal has revealed some compelling insights:

1. EMA outperformed other methods in long-term stock price predictions across multiple major stocks.

2. For Apple (AAPL) stock, EMA showed an impressive error rate of just 4.88% for long-term predictions.

3. Even for more volatile stocks like Tesla (TSLA), EMA maintained a respectable 12.99% error rate for long-term forecasts.

Error rates for long-term stock predictions: EMA consistently outperforms other methods

• With error rates consistently lower than other methods, EMA proves to be a reliable tool for long-term stock analysis.

• EMA's effectiveness varies by stock. It's particularly strong for stable blue-chip stocks like Apple, but still valuable for more volatile stocks.

• Across all six stocks studied (AAPL, AMZN, BXPH, GOOG, NFLX, TSLA), EMA showed lower error rates than Simple Moving Average (SMA) for long-term predictions.

Actionable Advice with Specific Numbers

1. 50-Day EMA Focus: The study used a 50-day EMA for their calculations. Make this a central part of your analysis toolkit.

2. AAPL Strategy: For Apple stock, a 50-day EMA yielded a 4.88% error rate. Use this as a benchmark for your AAPL predictions.

3. AMZN Insights: Amazon showed a 4.72% error rate with 50-day EMA. Consider this when analyzing e-commerce giants.

4. Volatile Stock Approach: For more volatile stocks like Tesla (12.99% error rate), use EMA in conjunction with other indicators for a more comprehensive view.

50-day EMA trend chart for Apple stock: Visualizing the 4.88% error rate in action

Putting EMA to Work: The Secret Formula

If you want to calculate your 50-day EMA manually, use this formula: