ROKU 1D 3 BAR EMA TRADING STRATEGY3 Bar EMA Trading Strategy
The EMA stock trading strategy can help us follow the price strength with one simple twist.
The twist is using two exponential moving averages with the same period, but calculated using two different sets of price data, namely:
The bars’ lows.
The bars’ highs.
Note* the inputs for both EMAs is 3-period. So we’re going to have one 3-period EMA applied to the lows and second 3-period EMA applied to the highs.
We can use the two 3-periods EMAs trading to locate chart zones that have the potential to signal short-term trend reversals. If we combine the two 3-periods EMAs we increase our odds of success.
Why are we using 2 exponential moving averages with the same period?
First, you need to keep in mind that the exponential moving averages are not magical tools. But, by using 2 EMAs with the same period, we accomplish two things:
We encapsulate the price between the two bands.
They can be used to form the basis of an EMA trading strategy that works.
EMA trading can be used in countless strategies, but they don’t equally perform the same.
Now, here is how to use the best EMA trading strategy.
For buy signals, we wait for both EMAs slopes to turn upwards and leave behind a sharpened EMA slope. There is no better way to explain this than by showing it directly on the price chart.
Note* There are going to be some instances where only one of the two EMAs is going to display a sharpened slope. However, the best EMA setups are when both exponential moving averages show the same thing.
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.
In case you haven’t noticed the two 3-period EMAs are doing a great job in eliminating the noise and reveal the trend direction. If you look closely you’ll notice that during uptrends the price has the tendency to stay glued on the 3-period EMA that is based on the highs. On the other hand, during downtrends, the price has the tendency to stay glued on the 3-period EMA that is based on the lows.
Now, here is an EMA technique that you can use to take advantage of this price behavior.
For EMA sell signal, wait until you see three consecutive candles that have the open and close price near the 3-period EMA that based on the low prices. Inversely, for EMA buy signal, wait until you see three consecutive candles that have the open and close price near the 3-period EMA that based on the high prices.
Final Words – EMA Trading
In summary, Exponential Moving Average (EMA) trading offers you the flexibility to trade in different market conditions and it provides a complete set of trading rules. The EMA stock trading strategy combines the power of using multiple moving averages of the same periods but using different forms of calculations. These EMA techniques will allow you to find unique trading opportunities that no one else is able to spot.
Here are the most important things you need to remember:
Exponential moving averages are more sensitive to the recent price.
EMA can signal good trades, but it can also keep you out of bad trades.
EMA offers dynamic support and resistance levels, which is good for trailing SL.
The EMA slope shape has hidden secrets.
The rules for the EMA trading strategy can be modified to fit your own trading needs. We don’t claim this to be hard rules, but they are good on their own to make for a great trading strategy. Make sure you first test out the EMA strategy on a paper trading account before you risk any of your hard-earned money.
