Moving averages trading: 5 EMA, 10 EMA, 14 EMA, 21 EMA, 50 EMA

This trading system is based on Exponential Moving Averages (EMA).

In this article you learn the trading with multi time frame analysis and trade breakout with Ema's.

Currency pair: EUR/USD, GBP/USD, GBP/JPY, EUR/AUD, EUR/GBP, USD/JPY.

Time frame: 15 min, 30 min, 60 min, 240 min, daily.

Forex strategy: multime frame, Icheck an currency on the following time frame: 15min, 60 min , 240 min and daily.

Why I use Exponential moving average? The purpose of using exponential moving averages is to identify the trend of the currency If the EMA is going down, and prices are below the moving average, the currency pair is in a downward trend, the opposite is for an up trend.

Indicators on the chart: 5 EMA, 10 EMA, 14 EMA, 21 EMA, 50 EMA.

Rules

Buy

EMA 5 crosses EMA 10 upward on 15 minutes chart, then later crosses EMA 14 still upward is an indication to go Long (Bullish)

How to generate Buying and Selling signal with EMA

2 to 3, or even 4 EMA’s must cross each other before a buying or selling signal can be generated using different parameters. I shall make do with all the 4 different parameters and give vivid examples of each on different time-trames.

Here is a 15 minute chart, using 3 to 4 EMA’s to generate both buy and sell signal on the same chart

Here is a 1 hour chart using 3 to 4 EMAs to generate a buy SIGNAL

On 1 hour time frame chart, if EMA 5 crosses EMA 10 upward I then know it is a good signal to go long. Just to confirm, I will also go back to the 15 minute chart to see what is happening. If the 5, 10, 14, and 21 EMA’s cross each other upward, that will now confirm my Long (Bullish Trend) and I will go long immediately without hesitating.

Although, I will always be PATIENT, I will head straight to 1 hours chart to check what the 5, 10, and 14 EMA’s are doing. If at the time the 5, 10, 14, and 21 EMA’s cross each other upward on the 15 minute chart, and on the 1 hour chart the 5, 10, and 14 EMA’s cross upward, I will take action because this is a GOOD SIGNAL that the market will go long.

4 hour and daily charts are to complement or serve as a continuation of the last day trading exercise.

The next day, the first chart I check is the 4 hour chart to check whether the trend is continuing from the previous day. If the 5 EMA crosses the 10 EMA upwards on the 4 hr chart or on the Daily chart,

I will go to the 15 minute time frame and check if the 5, 10, 14, 21, and 50 EMA’s cross each other upward. If they have, I will just go long (buy), but before that I will check if any economic events are coming up any time soon.

For sell reverse the previous conditions.

Trade breakout with 5 EMA, 10 EMA, 14 EMA, 21 EMA, 50 EMA

Whenever the 5, 10, 14, and 21 or 50 EMA’s form a narrow path on the chart they are in a range or in consolidation, i.e. the EMA’s overlap each other without going either up or down. Before I take any decision, I read my chart, if we had about 7 to 10 candle sticks in the past that has formed few different sizes, it is a clue that a breakout is around the corner.

This is how I trade these market conditions using my trading system. Since I don’t know where the market will go and I want to make more profits, I will place 2 pending orders to buy and sell. For my long order, I will read the chart to find the closest highest high candlestick as my yardstick to take profit and the closest lowest low candlestick as my yardstick to my stop loss. The reverse applies to short orders.

I place Pending Orders which will save me from making a wrong decision.

Time Frame 1H chart.

Take a close look at this chart. The 1 hour time frame gives me a clearer picture of where a reliable entry point and exit point is.

How to identify the Entry Point

Whenever the 5, 10 and 14 EMA’s cross the 21 EMA upward it is a good signal to go long on the 1 hour time frame. I usually aim for between 40 and 60 pips. The same rule applies to short orders.

How to identify the Exit Point

If after 4 hours, and all I could gather is just 20 to 30 pips, what I do next is to place my cursor on the last two candlesticks, i.e. candlesticks that were formed 2 hours behind the candle that is currently open. I check the open value of these candlesticks and the open value of the present candlestick and if the difference is 5 to 10 pips, I know that it is time to exit the trade and wait for another opportunity.

In the chart above entry points explanation.

My entry point is 0.88450 and my exit point is 0.88873 that is 42 pips. The candle sticks labeled 1-12 have open prices is not more than 10 pips apart from each other so it tells me to exit the market, at most, at the 5 th candle stick and wait for the sell opportunity that eventually occurs at the 14 th candle stick. Now take a look at the graph again, if had not exited the market and grabbed my 42 pips or if I had waited for the uptrend to continue, I would have lost my 42 pips profit and at the same time incurred further losses when the market suddenly reversed at the 14 th candle stick.

It is possible to always have a positive result with this system as long as you abide by the rules.

Short Trade Examples

Here is a good example of a Short Trade on the 15 minute time frame.

At point A the 5, 10 and 14 EMA’s all crossed the 21 EMA downward so I placed an order to sell. I placed my target limit 60 pips away at point B and this target was reached easily.

At point A, the 5, 10, 14 and 21 EMA’s all cross each other in a downward direction so I placed an order to go short at this point. I placed my target limit at point B which is 60 pips away. As you can see the target limit was taken easily.

Buy trade example below

At point A the 5, 10 EMA’s cross the 14 EMA in an upward direction so I placed an entry order to go long. At point C, the 5, 10 and 14 EMA’s all cross the 21 EMA confirming that there is a strong BUY signal. You will notice that this trade was made on the 4 hour chart so I did not use the 60 pip target limit and instead decided to let my profits run. At Point B I decided to exit the position with 221 pips after being in the trade for 3 days.

This particular trade generated close to 190 pips in just 1 day. At Point A, the 5, 10, 14 and 21 EMA’s cross upwards. This is a clear signal to go long so I placed a Buy Order and I made close to 190 pips in less than 24 hours.