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.

Best EMA Crossover Strategy

Exponential Moving Average 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.

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.

To put it simply, we're going to be using two different EMAs in this strategy. Each of them will have its own line going through the chart, and when the two EMA lines cross over each other, it would be known as an EMA crossover.

 

Using EMA Crossover Strategy on 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 8 EMA and 20 EMA. Let's understand how to perform this strategy on a long trade and a short trade.

 

Long Trade

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.

EMA crossover long 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.

 

Short 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.

EMA crossover short trade

Similarly, to exit a short trade, we have to wait for the EMA lines to crossover while the market is ascending.

 

Stop Loss and Take Profit

Setting stop loss and take profit levels using the EMA Crossover strategy on a 5-minute chart effectively is crucial for managing risk and maximizing profits in trading. Here are some tips to help you set these levels:

  • Stop Loss:
    Traders can set a stop loss level below the entry point for a long position or above the entry point for a short position. One of the easiest ways to determine a stop loss level is by the previous swings.
    Stop Loss and Take Profit Using EMA CrossoverStop Loss and Take Profit Using EMA Crossover


  • Take Profit:
    Traders can set a take profit level above the entry point for a long position or below the entry point for a short position. Similar to determining the stop-loss level, you can also identify the take-profit points using the previous swings.

 

EMA Crossover Strategy with Other Indicators

Many traders use a combination of EMA crossover with other indicators to increase the accuracy and reliability of their trading signals. Adding additional indicators can provide extra confirmation about the trend direction, market conditions, and potential entry or exit points.

Some commonly used indicators in conjunction with EMA crossover include:

 

1. EMA Crossover with MACD (Moving Average Convergence Divergence)

MACD combines moving averages with oscillator components. The combination of EMA crossover and MACD provides a strong confirmation signal. If both indicators experience a crossover simultaneously, the reversal signal will become even stronger.

Combining EMA Crossover with MACD

 

2. EMA Crossover with RSI (Relative Strength Index)

RSI is a momentum indicator that measures the strength and weakness of price trends. The combination of EMA crossover and RSI can provide confirmation signals. As shown in the image below, the oversold signal from RSI is followed by an EMA crossover, which confirms a bullish transition.

Combining EMA Crossover with RSI

 

3. EMA Crossover with Parabolic SAR

Parabolic SAR is a trend indicator that provides stop-and-reverse signals. If there is an EMA crossover followed by a change in the direction of the Parabolic SAR dots, it indicates a strong reversal.

Combining EMA Crossover with Parabolic SAR

 

Pros and Cons Trading with EMA Crossover

Trading with EMA crossover has both advantages and disadvantages, which are important to consider before incorporating this strategy into your trading approach.

✔️Pros ❌Cons
  • EMA crossover can help identify trends in the market. When the shorter-term EMA crosses above the longer-term EMA, it signals a potential uptrend, and vice versa for a potential downtrend.
  • EMA crossover is a relatively simple and easy-to-understand strategy, making it accessible to traders, including those who are new to technical analysis.
  • EMAs give more weight to recent price data, making them more responsive to current market conditions compared to Simple Moving Averages (SMAs). This responsiveness can lead to timely signals.
  • EMA crossovers can act as a guide for entry and exit points.
  • EMA crossovers can be applied to various time frames, making them suitable for day trading, swing trading, or even longer-term strategies.
  • EMA crossover strategies are prone to generating false signals during choppy or sideways markets, leading to whipsaws where the price moves back and forth across the EMAs.
  • Like all moving averages, EMAs are lagging indicators, meaning they rely on past price data. This lag can causeed responses to rapidly changing market conditions.
  • During periods of high market volatility or unexpected news events, EMA crossovers may generate erratic signals.
  • Different EMA combinations may not work optimally in all market conditions.

 

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.