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Trend Indicator: Exponential Moving Average
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The exponential moving average assigns weights in a manner similar to the weighted moving average. The most recent price is assigned a weight calculated as {2/(number-of-days + 1)}. Instead of calculating weights for all previous prices, however, it simply takes the previous day's exponential moving average and multiplies it by (1-weight).

With:
P_t the closing price at the date t.
EMA_t-1 the exponential moving average at the date t-1.
n the number of days
a the result of {(2/(n+1)}
EMA_tn the n days exponential moving average at the date t.

The n days exponential moving average can be computed as follows:

EMA_tn = (a*P_t) + {(1-a)*EMA_t-1}

Interpretation

When the price line cross the exponential moving average line from the top, it gives a sale signal. When it is from bottom, it gives you a purchase signal.

As for the moving average and the weighted moving average, the above signals are generally considered as valid if you have at the same time a trend change on the moving average line.

Graph Example: exponential moving average

In green you have the 50 days exponential moving average, in blue the 50 days weighted moving average and in red the 50 days moving average. You can see from this example that the exponential moving average follows more closely the pattern of the price line (in gray).