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22 changes: 17 additions & 5 deletions financial/exponential_moving_average.py
Original file line number Diff line number Diff line change
@@ -1,11 +1,13 @@
"""
Calculate the exponential moving average (EMA) on the series of stock prices.
Wikipedia Reference: https://en.wikipedia.org/wiki/Exponential_smoothing
https://www.investopedia.com/terms/e/ema.asp#toc-what-is-an-exponential
-moving-average-ema

Wikipedia Reference: [https://en.wikipedia.org/wiki/Exponential_smoothing](https://en.wikipedia.org/wiki/Exponential_smoothing)

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Closing because this change is not needed.


[https://www.investopedia.com/terms/e/ema.asp#toc-what-is-an-exponential-moving-average-ema](https://www.investopedia.com/terms/e/ema.asp#toc-what-is-an-exponential-moving-average-ema)

Exponential moving average is used in finance to analyze changes stock prices.
EMA is used in conjunction with Simple moving average (SMA), EMA reacts to the

EMA is used in conjunction with Simple Moving Average (SMA), EMA reacts to the
changes in the value quicker than SMA, which is one of the advantages of using EMA.
"""

Expand All @@ -17,9 +19,13 @@ def exponential_moving_average(
) -> Iterator[float]:
"""
Yields exponential moving averages of the given stock prices.

>>> tuple(exponential_moving_average(iter([2, 5, 3, 8.2, 6, 9, 10]), 3))
(2, 3.5, 3.25, 5.725, 5.8625, 7.43125, 8.715625)

>>> tuple(exponential_moving_average(iter([10.0, 20.0, 30.0]), 1))
(10.0, 20.0, 30.0)

:param stock_prices: A stream of stock prices
:param window_size: The number of stock prices that will trigger a new calculation
of the exponential average (window_size > 0)
Expand All @@ -30,9 +36,13 @@ def exponential_moving_average(
st = alpha * xt + (1 - alpha) * st_prev

Where,

st : Exponential moving average at timestamp t

xt : stock price in from the stock prices at timestamp t

st_prev : Exponential moving average at timestamp t-1

alpha : 2/(1 + window_size) - smoothing factor

Exponential moving average (EMA) is a rule of thumb technique for
Expand All @@ -49,14 +59,15 @@ def exponential_moving_average(
moving_average = 0.0

for i, stock_price in enumerate(stock_prices):
if i <= window_size:
if i < window_size:
# Assigning simple moving average till the window_size for the first time
# is reached
moving_average = (moving_average + stock_price) * 0.5 if i else stock_price
else:
# Calculating exponential moving average based on current timestamp data
# point and previous exponential average value
moving_average = (alpha * stock_price) + ((1 - alpha) * moving_average)

yield moving_average


Expand All @@ -68,6 +79,7 @@ def exponential_moving_average(
stock_prices = [2.0, 5, 3, 8.2, 6, 9, 10]
window_size = 3
result = tuple(exponential_moving_average(iter(stock_prices), window_size))

print(f"{stock_prices = }")
print(f"{window_size = }")
print(f"{result = }")
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