ETHUSD 1H EXPONENTIAL MOVING AVERAGE TRADING STRATEGYStep #1: Plot on your chart the 20 and 50 EMA
The first step is to properly set up our charts with the right exponential moving averages so we could be able to identify the EMA crossover at the later stage. The exponential moving average strategy uses the 20 and 50 periods EMA.
Most standard trading platform come with default moving average indicators so it should not be a problem to locate the EMA either on your MT4 platform or Tradingview.
Step #2: Wait for the EMA crossover and for the price to trade above the 20 and 50 EMA
The second rule of the exponential moving average strategy is the need for the price to trade above both 20 and 50 exponential moving averages and secondly, we need to wait for the EMA crossover which will add more weight to the bullish case.
We refer to the EMA crossover for a buy trade when the 50-EMA crosses above the 50-EMA.
forex ema crossover strategy
By looking at the EMA crossover we create an automatic buy and sell signals.
However, since the market is prone to do a lot of false breakouts we at Trading Strategy Guides need more evidence than just a simple EMA crossover. At this stage, we don’t know if the bullish sentiment is strong to push the price further after we buy so we can make a profit.
To avoid the false breakout we added a new confluence to support our view which brings us to the next step of the exponential moving average strategy.
Step #3: Wait for the zone between 20 and 50 EMA to be tested at least twice, then look for buying opportunities.
The conviction behind the exponential moving average strategy relies on multiple factors to confirm a new trading idea. After the EMA crossover happened, we again need to exercise a little bit more patience and wait for two successive and successful retests of the zone between the 20 and 50 exponential moving averages.
The two successful retest of the zone between 20 and 50 EMA gives the market enough time to actually develop a trend.
Never forget that in trading no price is too high to buy, and no price is too low to sell.
Note* When we refer to the “zone between 20 and 50EMA” we actually don’t mean that the price needs to trade in the space between the two moving averages.
We just wanted to cover the whole price spectrum between the two EMAs because the price often times will only briefly touch the shorter moving average (20-EMA) which is still a successful retest.
Step #4: Buy at the market when we retest the zone between 20 and 50 EMA for the third time.
If the price successfully retests the zone between 20 and 50 EMA for the third time we go ahead and buy at the market price. We now have enough evidence that the bullish momentum is strong to continue pushing this market higher.
Step #5: Place the protective Stop Loss 20 pips below the 50 EMA or below fractal low.
After the EMA crossover happened and after we had two successive retests we now know the trend is up and as long as we trade above both exponential moving averages the trend remains intact.
In this regard, we place our protective stop loss 20 pips below the 50 EMA or below the fractal low. We added a buffer of 20 pips because we understand we’re not living in a perfect world and the market is prone to do false breakouts.
Step #6: Take Profit once we break and close below the 50-EMA or you pick your own TP strategy.
In this particular case, we don’t want to use the same exit technique as our entry technique which was based on the EMA crossover.
If we would be waiting for the EMA crossover to happen on the other side then probably we would have given back some of the potential profits because we still need to consider the fact that the exponential moving averages are still a lagging indicator.
The exponential moving average formula used to plot our EMAs allow us to still take profits right at the time the market is about to reverse.
Note** The above was an example of a BUY trade… Use the same rules – but in reverse – for a SELL trade. However, because the market goes down much faster, we sell on the 1st retest of the zone between 20 and 50 exponential moving averages after the EMA crossover happened.
