What are the best EMA periods if you scalp in small time frames? This particular strategy could give you an insight to the best EMA crossover in a 5-minute chart.
The forex industry is huge and is continuing to grow every day. There are now millions of people who trade forex on a daily basis. With so many people performing trades, there are several different strategies emerged. Everyone vouches for their own strategies, but the truth is, no strategy is wrong as long as you perform it the right way. One of the most popular trading strategies is the use of Exponential Moving Averages. Let's get into more detail on what this actually is before we reveal our favorite strategy with this method of trading.
What is Exponential Moving Average?
In order to understand what is an Exponential Moving Average, we need to first know what a Moving Average is. A Moving Average is a type of indicator that is used to analyze price data over a specific period of time by creating a line graph representing the average price. Exponential Moving Averages is a type of Moving Average that gives greater weight or importance to the more recent price in a chart. The smaller the EMA number, the more responsive it is to the latest price.
What is an EMA Crossover?
The strategy we're going to be talking about today revolves around having an EMA crossover. Now you may be wondering what this even means. We're going to be using two different EMAs in this strategy. Each of them will have its own line going through the chart. When the two EMA lines cross over each other, it would be known as an EMA crossover. This crossover strategy is only going to work if you're using two different EMAs. This is because this is the only way they'll generate two different lines with different weights.
Best EMA Crossover for 5-Minute Chart
Now that we've understood what an EMA crossover is, let’s get into our strategy. We're going to be using two EMAs on a 5-minute chart. We're going to be depending on their crossover points in order to execute our positions. The two EMAs we're going to be using are the 8 EMA and the 20 EMA. Let's understand how to perform this strategy on a long trade and a short trade.
See Also: 5 Minute Trading Strategy with EMA
A long trade is where you enter a trade in a BUY position. To enter a long trade with this EMA crossover strategy, we're going to have to wait for the two lines to crossover while the market is moving in an ascending pattern. Once this happens, we enter the trade.
To exit a long trade with this EMA strategy, we're going to wait to see when these two lines crossover while the market is moving in a descending pattern. Once this happens, we exit the trade.
A short trade is where you enter a trade in a SELL position. It uses the same method we just went over above but just done the opposite way. To enter a short trade, we have to wait for the EMA lines to crossover while the market is descending.
Similarly, to exit a short trade, we have to wait for the EMA lines to crossover while the market is ascending.
In addition to 8 and 20 EMA lines, there is a certain EMA period that is well known for its reliability in signifying price trends. Learn about it further in 200 EMA Trading Strategy, Simple Yet Powerful.