subject: Forex Made Easy With Simple EMA Crossover [print this page] Forex Made Easy With Simple EMA Crossover
When Forex traders are trying to determine the general trend of a currency pair, a simple system using nothing but EMAs as the indicators can be very useful. You can trade many pairs with this system but the GBP/USD or cable is especially good to trade with. It is also best to use a daily chart to determine the overall trend rather than looking at the hourly or lower.
An EMA refers to an exponential moving average and the price data is weighted so that the most recent price changes are given more significance. Traders like these indicators better than simple moving averages because they want to take advantage of the most recent trend and get out of the trade before it is too late. EMAs allow you to do this and are a good way to avoid the losses that come when the market is only ranging on not trending.
This particular system uses the 5 period EMA and the 8 period EMA. You can change the settings on your platform so that you have these periods indicated with two different colors. On this chart: http://ifxprofits.com/article12.jpg , the 5 period EMA is shown in purple and the 8 period EMA is shown in orange. Instead of the daily chart, they are being used on an hourly chart but some traders like to combine the hourly and the daily trend to achieve something known as Trend alignment.
It is a personal preference when you decide how to determine a trend but, either way, the chart shows several examples of the kind of crossovers you will be looking for to determine the direction you want to trade. Four different crossovers on the hourly chart are shown by the arrows and you can always use these kind of crossovers to determine which direction you should enter the trade.
The numbers indicate the point at which the EMAs crossed and this is also a strong indication that it is time to enter either in a long or a short direction. Number 1and 3 indicate long entry points and numbers 2 and 4 indicate short entry points. Apply these periods to your EMAs and you can be sure to get some good signals when the crossovers happen.
Of course, exit strategies are harder to determine until after you have seen the price action on the trade. The simplest method is to shoot for 60 pips of profit on a daily chart and 30 pips on an hourly chart. On the example hourly chart, each of the 4 trades could potentially take 30 pips and this is a good minimum to wait for if you use these indicators.
Of course, traders who have more patience and dont mind a bit more risk can get in on the really big profits. Trade #1 had a potential of 170 pips! Thats not too bad for a first trade and you might have been better off to take your winnings and go out to celebrate! Good luck and happy trading.
