How to use EMAs
Many of you have questions about how to use a moving average or an expontetial moving average or which setting are the right.For the first part of the question I have answers. For the second part of the question, as I have said in some comments there is nothing standard about it. You should make your backtest, you should make your paper trades and see which settings fit better to your strategy. I could tell you which settings fit to my strategies.
First of all I prefer EMAs because they are more focused on the present and I am a day trader. MAs are more focused on the past.So, how can you use the EMAs?
- EMAs crossovers
In this chart I have 2 EMAs. A green one with 4 periods and a red one with 8 periods. I use these settings only in 1min chart and mainly in 60 secs trades. Look at the blue rectangle.We have a crossover and now the green EMA is above the red. This is s buy signal.On the other hand we have a sell signal.
- Price breaks the EMAs
In this chart you can see that the big red candle in the rectangle breaks the 2 EMAs. If the next candle open below the two EMAs we have a sell signal.On the other hand we have a buy signal.(I mean if a bearish candle breaks up the 2 EMAs and the next candle open above the 2 EMAs.)
For bigger Tfs like 5 minutes I use 13, 26 EMAs.
- EMAs as S/R
Many times EMAs can act as a support or a resistance.This is an example of 200 EMA acting as a support in a 5min chart.
It’s from AUDUSD currency pair. The price breaks the Kumo and we have a clear down trend. The tenkan is the red line and the Kijun is the blue. Notice how well the Tenkan rejects the price when the price is trying to move up. It’s a solid physical resistance. I can count 4 or more ITM trades in this chart in the direction of the trend.
You can take some good trades with EMAs but of course is not a holly grail. Combine them with Volume, Price Action, Ichimoku Kinko Hyo and you will have all you need to trade.