We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
GBP/USD
Mixed
USD/JPY
Mixed
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Bearish
Bitcoin
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • RT @onlyyoontv: #China Foreign Ministry slams @SenatorRisch for openly supporting “extremists and violent activists” in #HongKong. Says Bei…
  • RT @markets: #5things -Powell testimony -Public impeachment inquiry -Another oil demand warning -Markets slip -Inflation data due https://t…
  • RT @lisaabramowicz1: U.S. investment-grade bonds are still very much in a sweet spot. Spreads on the debt have fallen to the lowest since M…
  • 🇺🇸 USD MBA Mortgage Applications (NOV 8), Actual: 9.6% Expected: N/A Previous: -0.1% https://www.dailyfx.com/economic-calendar#2019-11-13
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.56%, while traders in France 40 are at opposite extremes with 83.09%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/rivYzCbCp2
  • Heads Up:🇺🇸 USD MBA Mortgage Applications (NOV 8) due at 12:00 GMT (15min), Actual: N/A Expected: N/A Previous: -0.1% https://www.dailyfx.com/economic-calendar#2019-11-13
  • Have you joined @DailyFX @facebook group yet? Discuss your #forex strategies and brush up on your skills with us here: https://t.co/jtY1G7g8yx https://t.co/6rBo32FNxJ
  • Commodities Update: As of 11:00, these are your best and worst performers based on the London trading schedule: Silver: 1.11% Gold: 0.59% Oil - US Crude: -0.75% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/6kJZ63Pjzt
  • Gold Price Forecast: XAU/USD Sellers May Press Towards 200-DMA More details in the link below: https://www.dailyfx.com/forex/technical/home/analysis/xau-usd/2019/11/13/Gold-Price-Forecast-XAUUSD-Sellers-May-Press-Towards-200-DMA-MK.html?CHID=9&QPID=917714 https://t.co/SQ7fHrZH6K
  • Forex Update: As of 11:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.96% 🇨🇭CHF: 0.28% 🇬🇧GBP: 0.06% 🇪🇺EUR: 0.02% 🇦🇺AUD: -0.23% 🇨🇦CAD: -0.25% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/PY232tlY6W
EMA Trading | An EMA Strategy with Forex Trends

EMA Trading | An EMA Strategy with Forex Trends

2019-08-13 11:24:00
Warren Venketas, Markets Writer
Share:

EMA Trading: Overview

  • What is “EMA” in Forex Trading?
  • Three-Step EMA Trading Strategy
  • Step 1: Find the Trend in Your Forex Pair
  • Step 2: Using EMA to Time Entries
  • Step 3: Using EMA to Find Exit Positions

What is “EMA” in Forex Trading?

The EMA is a consequent of the simple moving average (SMA). The EMA is an indicator offered on most charting packages which enables traders to identify trends as well as potential entry and exit signals. When it comes to trending markets, traders have many options in regard to strategy. This article will review EMA’s and how they can be used to create a complete strategy for forex trends.

Three-Step EMA Trading Strategy

The EMA trading strategy discussed below will revolve around the use of a series of EMA’s (Exponential Moving Average). These averages work the same as a traditional SMA by directly displaying an average of price for a selected period on the graph. However, the EMAs calculation incorporates a weight to put a greater emphasis on most recent price. This weight is placed to remove some of the lag found with a traditional SMA. This makes the EMA a perfect candidate for trend trading.

Step 1: Find the Trend in Your Forex Pair

Before entering into a trend-based position, traders need confirm the trend. The chart below shows a EUR/USD Daily chart. Notice the pair is forming higher highs along with higher lows, which makes the EUR/USD pair a strong candidate for an uptrend. This analysis can be confirmed by the use of a 200 EMA as marked on the chart. Traditionally traders are bullish when price is above the 200 EMA and bearish if price resides under the average.

EUR/USD trend analysis:

200 EMA trend trading

Step 2: Using EMA to Time Entries

Once market direction is identified, traders can then use a series of EMA’s to enter the market. Below includes a 12 and 26 period EMA have been added to the graph. Since traders are looking to buy in an uptrend, it is important to identify areas where momentum is turning back in the direction of the trend. EMA’s can help traders decipher this by recognizing an area where the shorter period (12) moving average crosses above the longer period (26) EMA. At this point traders can look to buy the market.

The EUR/USD chart shows several possible buy entries using EMA’s. Remember, this process can be replicated for a downtrend by selling in the event that the 12 period EMA crosses below the 26.

EUR/USD entries:

EMA entry signals in a trending market

Step 3: Using EMA to Find Exit Positions

Now that a trade has been opened, traders need to identify when it is time to exit the market. This is the third and final step in developing a successful strategy. Traders may choose a variety of stop/limit and risk-reward combinations here to suit their trading needs. However, EMA’s can be incorporated into the market exit strategy as well. Trader buy on a return to bullish momentum therefore, traders should close positions when momentum subsides. This can be found in an uptrend when price moves back and touches the 12 period EMA.

Stops should also be placed when trading with the trend. One simple methodology is to place stops under a swing high or low on the graph. This way if the trend turns, any positions can be exited for a loss as quickly as possible. The chart below exhibits this technique using a portion of the trade example above.

EUR/USD exits:

EMA exit signals in a trending market

EMA Trading: A Summary

EMA’s are versatile in that the can be used to identify trend, entries and exit points. This provides a complete trade process for traders looking for a simple trend trading system. The EMA is often seen as complex in nature however, the above article shows how simple and effective this indicator can be for both novice and experienced traders alike.

Become a Better Trader with Our Trading Tips

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.