One such strategy uses exponential moving averages (EMAs), precisely the five and 20-period EMAs. Every trade setup I make starts with checking out exponential moving average (EMA) lines on my charts. In my 10+ years of trading, I have come across a multitude of tools as I strive to improve my trading every day and refine my strategy. Some tools don’t make the cut, while others have become vital to my setups. Let’s talk about what an EMA is and how you can use this indicator in your trading.

• The past performance of any trading system or methodology is not necessarily indicative of future results.
• When the EMA slope starts to shift direction from down to upwards, it potentially signals a bullish trend.
• The advantage of our EMA indicator strategy stands in the exponential moving average formula.
• We automate the strategy by using one moving average with a longer period and one with a shorter period.

Using the exponential moving average (EMA) can enhance almost any trading strategy. Learn the 3-bar EMA strategy that combines the power of two short-term exponential moving averages. Throughout this EMA trading guide, we’re going to reveal some unconventional EMA techniques that can dramatically improve your trading outcomes. This EMA stock trading strategy uses 2 EMAs with the same period but with different settings.

TEMA trading strategy backtest

The 5 EMA strategy revolves around the Exponential Moving Average, a technical indicator that smooths out price data to reveal trends over time. With the 5 EMA strategy, traders focus on the 5-period EMA line, a short-term indicator used to identify potential entry and exit points. The 5-minute trading strategy with EMA provides an opportunity for traders to profit on a short burst of momentum. The strategy guides traders to open and close positions at the best possible time. Just keep in mind that this strategy has its flaws too and in the end, the market condition is the one dictating the results. Now that a trade has been opened, traders need to identify when it is time to exit the market.

Building a foundation of understanding will help you dramatically improve your outcomes as a trader. However, there are other more sophisticated and accurate techniques to use the 9 EMA. Those mainly include adding another EMA indicator or volume and momentum indicator and looking for a crossover. Rather than using static levels for your stop loss, you can trail your SL above/below a relevant EMA. As an aside note, make sure you always use a buffer for your SL to account for the inevitable false breakouts. So, in other words, it allows you to enter a position right at the start of a new trend.

It reveals a short-term trading trick used by institutional traders. This 20 and 50 EMA trading strategy is a classic example of how to construct a simple EMA crossover system. With this exponential moving average system, we’re not trying to predict the market. We’re trying to react to the current market condition, which is a much better way to trade. After the EMA crossover happened and after we had two successive retests, we knew the trend was up. The trend remains intact as long as we trade above both exponential moving averages.

Can the 5 EMA be used as a standalone trading strategy?

Using the EMA does not eliminate the risk of trading, but it does make it easier to determine which trades will likely be profitable. One is to run the position until the EMAs cross back in the other direction, i.e., when the trend runs to its conclusion, which can sometimes yield tremendous returns. Still, another option is to look to make a good number of pips per trade and move your stop-loss to break-even as soon as it is in profit. Exponential moving averages(EMA) provide you with a good indication of the current trend.

How To Build A Profitable Parabolic SAR Trading Strategy Using Python

Combining the RSI with the EMA strategy offers additional confirmation of the trend. Thus, you can make better trades, and it helps improve efficiency. On the chart below, we’ve plotted a blue 13-period EMA and a red 21-period EMA on a 5-minute chart of gold (XAU/USD). You need to ensure that the asset is closing candles above 20 and 50 EMA and that it has also tested the EMA lines before entering the trade. The majority of common trading systems provide MA indicators by default. It should be straightforward to locate the EMA on either your MT4 or Tradingview software.

Simple Scalping Strategy of 5 & 15 EMA Crossover

Before delving into the next section of the code, it is important to be familiar with the Object Oriented Programming approach (OOP). The article How I Made a Profitable Stochastic Oscillator Strategy with Python implements a trading strategy following the OOP. The backtesting.py library requires writing the indicators as functions.

The “best” EMA trading strategy ultimately depends on your trading style, risk tolerance, and market conditions. The 9 EMA strategy, with its rapid responsiveness, is a strong choice for short-term traders. However, you should choose the strategy that aligns with your goals and preferences. You can place your take-profit order as soon as the market prints a Doji candlestick following a significant price movement.

Our team of experts likes to test the boundaries of what works in the markets and set new trading rules. The Exponential Moving Average is not only one of the oldest technical indicators, but it’s also a versatile tool. To increase our edge with the EMA trade we need to use other variables.

You use the 9 Exponential Moving Average in a crossover with other EMAs, technical indicators, or price action. Fundamentally, when the 9 EMA crosses below the price action, it suggests an upward trend. Conversely, when the EMA crosses above the price action, it indicates a downward trend. By exploring various crossover strategies with the 9 EMA and honing your trading skills, you can harness its potential to make informed and profitable trading decisions. Yet, if you need further assistance in learning the 9 EMA strategy, along with other trading strategies, we are here to assist you.

The 20 EMA is used to gauge new trends and the MACD is utilized to confirm whether the momentum is in place. However, while both indicators reinforce each other, the signal given is not always correct. During an uncertain period in the market, the price may simply fluctuate around the 20 EMA while the MACD alternately turns positive and negative, leading to false signals.

Everything is simple with this strategy and as such, we close the trade once we break below the 3-period EMA that is based on the low prices. The EMA stock trading strategy can help us follow the price strength with one simple 5 ema trading strategy twist. EMA trading aims to improve the inherent lag time of the SMA. The EMA outperforms the SMA by putting more weight on the recent price action. At the same time, the EMA puts less weight on the historical price.

This includes stocks, indices, Forex, currencies, and the crypto-currencies market, like the virtual currency Bitcoin. If the strategy works on any type of market, it works for any time frame. In simple terms, you can trade with it on your preferred chart. Traders often use the 5 EMA strategy in conjunction with other indicators to enhance its reliability.

We also need to make sure that the RSI line has also crossed below the 50 level. Once both conditions are met, we can take a sell trade in gold. When a blue line (13 EMA) crosses the green line (21 EMA) from upside to downside, it signals a selling trend in the asset. So if you would like to move forward with this EMA crossover trading strategy, the next step is to start backtesting. Since there are more data points in the 200 EMA, the current closing price has a smaller effect and only has 1% or 0.01 more weight than the other 199 data points.