It employs two moving averages, fast and slow. This trading approach is also called Double Crossovers according to John Murphy. This tactic is also good to gain practical experience. The signal is simple and straightforward, with no ambiguity. However, let us analyze it in more detail. It takes quite a time for even one MA to reverse.
And here, we first expect a reversal and a crossover after that.
Why should we use an exponential moving average?
Can an exponential moving average serve as a dynamic support level? It seems like this line is completely non-existent on the chart, right? But let's speculate. Imagine that the price is rising and suddenly begins to fall to its average value for a certain period. It will look so that the price is approaching the indicator line. The arrows indicate the candlesticks formed in the trend direction after the price rebound from the indicator. Considering their formation close to the MA, they are more likely to indicate the end of the correction. After those bars close, one could consider entering trades in the trend direction.
Summing up all the above, such a trading approach makes sense. They both indicate the exhaustion of the ongoing trend and the beginning of the opposite trend. That is the price rebound. Expect these candlestick patterns and enter winning trades on the rebound. Longer timeframe. Attach the MAs with the same settings, both the trading timeframe and the longer one. You enter trades in your trading timeframe according to the MA direction in the longer timeframe.
Do you remember that the exponential moving average indicates the trend direction? There must be other ways to filter signals, but I do not see any point in studying million of the methods, because:. What do you, as a trader, want to achieve by filtering signals to buy or sell? You are likely to be aiming at reducing the number of false signals.
Can you reduce them to 0? What is the idea of signal filtering based on?
It is based on the fact that you can predict the future price movement according to the current chart structure. Is it real? After going outside the overbought zone, the price can well go back. These three methods are enough to gain experience and gradually come to your own trading approach.
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You can use exp moving averages in trading any financial instrument; there are no restrictions. I recommend paying attention to the currency pairs with the Japanese yen - the trends are smoother there. Next, I will share the simplest and the most transparent, and so, the best EMA trading strategies. These trading methods will help you gain practical experience and develop your own trading style. The EMA indicates a global trend.
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You are meant to buy when the price is above EMA and sell when it is below. If you open a position only when the price crosses EMA , you will have about trades per year. Entry on the price rebound from the indicator, entry according to the triangle pattern, entry according to the flag pattern. If you want to switch from long-term investing to middle-term trading, you can consider the trading strategy based on the three-month moving average.
I marked the entry points for the EMA rebound entry to sell red and to buy green. I also marked the try to enter according to the Flag pattern, but the movement is too short. The strategy aims to receive entry signals when the slow and the fast moving averages cross. Trading is also carried out on a daily timeframe, so it suits intraday traders.
The number of trades per year will be much higher than in previous strategies based on one exponential moving average. In the chart, I marked the buy signals green and the sell signals red. They will not always be followed by a strong trend. You enter either buy or sell trade after the candlestick, where the two EMAs meet, closes. A stop loss is set beyond the signal candlestick.
There will be a channel consisting of three exponential moving averages. Note that you enter a trade only when the price goes from the opposite side of the channel. Sell when the price was above the upper channel border and then fell below the bottom border. Buy is the price was below the lower channel border and then rose up above the top border. Red boxes mark the sell trades on the rebound from the lower channel border. Green boxes mark buy trades on the rebound from the upper channel border. The signals will not always be profitable, but it is normal for trend strategies.
For each signal with a good profit, there will be several less successful entries. For more complex analysis, you can consider a timeframe that is 2 degrees longer than the trading one. The following requirements should be met:. To fix the profit, there is used the trailing stop, the stop loss follows the SMA 5 along with the trend movement. At the same time, there is a signal to enter a trade in the ongoing trend direction. The strategy is based on the several Moving Averages with different periods and is best for H1 timeframe.
Add three MA indicators to the chart with following settings:.
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If there exists a triple exponential moving average, we could suppose that double and single averages exist too. However, that's not right. A double exponential moving average does exist and is called DEMA, but the single one doesn't.
Description
However, there is a classic exponential moving average - EMA. Solely the candle closure price is applied when computing the TEMA value. All is easy as a trader doesn't have to do anything: the program computes everything independently. However, it would be good to know how it does that. Trader may change only one parameter - the period.
5EMAs Forex System - Opinions - page 9
I highly recommend that you have a closer look at EMA if you are not acquainted with it yet. You can see the line of price fluctuations and the lines of the 3 indicators on the chart. What's so good about TEMA? It has reacted faster to an upcoming price movement than the other have.
The principle of the MA work consists in lagging behind the price. The shorter a lag is the better. There is a saying: Any trading strategy is good in a good market. The green line marks the price bar, where I entered a sell trade. The red line marks the level of the stop loss.
