Exponential Moving Average - The popular EMA Forex Trading Indicator
It is known that the exponential moving average is simply a line that is calculated from the average of a number of period points.
Additional weight is given to the first few points, unlike the simple moving average. In the SMA, identical weight is given on all data period points. What is the reasoning behind this? A number of traders feel that simple moving averages do not react swiftly enough to drastic market movements.
Hence, the creation of the exponential moving average. If you were to enter a 20 SMA alongside a 20 EMA, the exponential moving average will always react to price movement faster than the SMA would. But it does not always do well. Because it reacts quickly, many incorrect changes in the trend occur.
This is principally troubling in a side trending market. Because of this, most forex traders avoid using moving averages when the market is ranging.
The EMA crossover is a popular strategy involving this indicator. Generally, traders use the 13 along with 5 EMA in this strategy. Should the 5 ema cross above the 13 line, buy, if it crosses below the 13 EMA, sell. In a trending market, this strategy works quite well. In a ranging market, heavy losses will take place.
Another exponential moving average cross over system involves not two EMA's but three EMA's. Forex traders select the EMA of 4, 9 plus 18. When utilized, the three periods represent the short term, mid term and long term trends.
Should both the 4 and 9 exponential moving average cross over the 18 line, this is a sign to buy. In reverse, should both 4 and 9 cross underneath 18, that is an indication to sell the financial instrument.
While this indicator does have its uses, it should always be used in conjunction with other tools for the best chance of success. It is used to verify the trade and too much weight should not be given to it on its own. - 23199
Additional weight is given to the first few points, unlike the simple moving average. In the SMA, identical weight is given on all data period points. What is the reasoning behind this? A number of traders feel that simple moving averages do not react swiftly enough to drastic market movements.
Hence, the creation of the exponential moving average. If you were to enter a 20 SMA alongside a 20 EMA, the exponential moving average will always react to price movement faster than the SMA would. But it does not always do well. Because it reacts quickly, many incorrect changes in the trend occur.
This is principally troubling in a side trending market. Because of this, most forex traders avoid using moving averages when the market is ranging.
The EMA crossover is a popular strategy involving this indicator. Generally, traders use the 13 along with 5 EMA in this strategy. Should the 5 ema cross above the 13 line, buy, if it crosses below the 13 EMA, sell. In a trending market, this strategy works quite well. In a ranging market, heavy losses will take place.
Another exponential moving average cross over system involves not two EMA's but three EMA's. Forex traders select the EMA of 4, 9 plus 18. When utilized, the three periods represent the short term, mid term and long term trends.
Should both the 4 and 9 exponential moving average cross over the 18 line, this is a sign to buy. In reverse, should both 4 and 9 cross underneath 18, that is an indication to sell the financial instrument.
While this indicator does have its uses, it should always be used in conjunction with other tools for the best chance of success. It is used to verify the trade and too much weight should not be given to it on its own. - 23199
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posted by X - Men @ 7:41 AM
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