August 27, 2008
Here's A Solid EMA Trading Strategy…
If you're subscribed to my newsletter, you will probably have learnt about my trading strategy by now and will know that I'm a big fan of Exponential Moving Averages, or EMA's for short.
Well today I thought I'd share with you an alternative method of trading forex that incorporates these highly effective indicators. I don't use this particular method myself but it's one that's quite popular amongst traders, and after doing a lot of back-testing it does appear to be quite an effective method.
All you do is plot a graph with 3 EMA's which consist of the 4, 9 and 18 period EMA. Then you simply go long when the EMA (9) crosses upwards through the EMA (18) and vice versa. Ideally you should wait for a slight pullback (ie to the EMA (9) or EMA (18)) before entering a position in order to obtain maximum value.
Then you can either move your stop loss up to break even if the position goes into profit, and exit at your own discretion or you could apply set rules leaving the position open for as long as possible. For example, you could automatically close the position when the EMA (4) crosses over the EMA (9) or when the EMA (9) crosses back over the EMA (18).
There are many ways you can apply this method. You can even apply some of your own indicators to increase the success rate of this system. Overall though even the basic strategy is a fairly solid strategy.
What I like about it is the fact that you can get out fairly cheaply if the EMA's cross back again soon after entering a position, and yet you can yield a lot of points if you allow EMA crossovers to run their course, particularly over the longer time frames.