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HOW TO TRADE AN EMA STRATEGY ON THE EURAUD 4HStep #1: Plot on your chart the 20 and 50 EMA The first step is to properly set up our charts with the right moving averages. We can 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. It should not be a problem to locate the EMA either on your MT4 platform or Tradingview. Now, we’re set to go a look more closely to the price structure. This brings us to the next step of the strategy. Step #2: Wait for the EMA crossover and for the price to trade BELOW the 20 and 50 EMA . The second rule of this moving average strategy is the need for the price to trade BELOW both 20 and 50 EMA . Secondly, we need to wait for the EMA crossover, which will add weight to the bullish case. We refer to the EMA crossover for a SELL trade when the 20-EMA crosses BELOW the 50-EMA. By looking at the EMA crossover, we create an automatic buy and sell signals. Since the market is prone to false breakouts, we need more evidence than a simple EMA crossover. At this stage, we don’t know if the bearish sentiment is strong enough to push the price further after we sell to make a profit. To avoid the false breakout, we added a new confluence to support our view. This brings us to the next step of the strategy. Step #3: Wait for the zone between 20 and 50 EMA to be tested once since the market goes down much faster, we sell on the 1st retest of the zone between 20 and 50. After the EMA crossover happened, then look for selling opportunities. The conviction behind this moving average strategy relies on multiple factors. After the EMA crossover happened, we need to exercise more patience. Never forget that no price is too high to buy in trading. 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. This is because the price will only briefly touch the shorter moving average (20-EMA). But this is still a successful retest. Now, we still need to define where exactly we are going to sell. This brings us to the next step of the strategy. Step #4: Sell at the market when we retest the zone between 20 and 50 EMA for the first time. We go ahead and sell at the market price. We now have enough evidence that the bearish momentum is strong to continue pushing this market lower. Now, we still need to define where to place our protective stop loss and where to take profits. This brings us to the next step of the strategy. Step #5: Place the protective Stop Loss 20 pips above the 50 EMA After the EMA crossover happened, and after we had two successive retests, we know the trend is down. As long as we trade below both exponential moving averages the trend remains intact. In this regard, we place our protective stop loss 20 pips above the 50 EMA . We added a buffer of 20 pips because we understand we’re not living in a perfect world. The market is prone to do false breakouts. The last part of our EMA strategy is the exit strategy. It is based again on the exponential moving average . Step #6: Take Profit once we break and close above the 50-EMA or you determine the TP strategy In this particular case, we don’t use the same exit technique as our entry technique, which was based on the EMA crossover. If we waited for the EMA crossover to happen on the other side, we would have given back some of the potential profits. We need to consider the fact that the exponential moving averages are 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 SELL trade. However, because the market goes down much faster, we sell on the 1st retest of the zone between 20 and 50. After the EMA crossover happened.Use the same rules – but in reverse – for a BUY trade except wait for 2 retest of 20/50 ema zone then enter on the 3rd retest. The two successful retest of the zone between 20 and 50 EMA gives the market enough time to develop a trend.
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