![]() You can use the average true range (ATR) indicator to determine the appropriate number of pips for your profit target. When trading with the EMA, setting your profit target should entirely be based on market volatility. To avoid any false breakouts, always ensure that the candle crosses above the EMA, close above it, and the subsequent candle opens higher. And the best entry point is after the price breaks and closes above the EMA. An ideal bullish breakout is one that follows a period of consolidation after a sustained bear market. Bullish EMA trends are characterized by an upward sloping EMA, and the steeper the slope, the stronger the momentum.Ī steep slope means that the recent prices are increasing at a faster rate, implying that the bullish trend is stronger. Ideally, the best breakouts usually occur after a period of consolidation. EMA Bullish BreakoutĪ bullish EMA breakout occurs when the price action breaks above the EMA. Ideally, the best timing for EMA trading is right after the market undergoes a consolidation phase, implying there’s a higher probability of a massive breakout. EMA Breakout TradingĪs we’ve mentioned, EMA serves as dynamic support and resistance, which means you can use the EMA for breakout trading. That’s because time allows the “market noise” to be filtered out. A key point to note when trading the EMA or any of its variants is that they tend to be more effective over longer timeframes. Generally, there are two ways to trade with the EMA – breakout trading and crossover trading. This means you should avoid using the EMA when the market is in a consolidation phase – when the EMA is flat. The EMA basically serves as dynamic support and resistance and only works best in a trending market. TEMA = (3 x EMA 1) – (3 x EMA 2) + (EMA 2)ĮMA 3= EMA of EMA 2 How to Trade with the EMA Here’s the formula for the TEMA indicator: It gets its name from the fact that the EMA is tripled, not that three different EMAs are used. The TEMA indicator is also a variant of the regular EMA designed to reduce the lag. Here’s how the DEMA indicator is calculated:ĮMA 2 = EMA of EMA1 Triple Exponential Moving Average It achieves this by doubling the value of the EMA. As we’ve mentioned, its primary goal is to reduce the lag experienced on the EMA. ![]() Double Exponential Moving Average (DEMA)Ī double exponential moving average (DEMA) indicator is a variation of the regular EMA indicator. While their trading strategies are similar, their optimal usage entirely depends on your trading strategy. But as you can see from the chart below, DEMA is more responsive than the EMA, while TEMA is more responsive than the DEMA. The trading strategies when using DEMA, TEMA, and EWMA are the same. This is where the double exponential moving average (DEMA), the triple exponential moving average (TEMA), and the exponential weighted moving average (EWMA) come in. But this lagging can be significantly reduced by using expansive data sets. Price = the current closing priceĪdmittedly EMAs can be notoriously laggy, increasing the probability of fakeouts. But if you intend on calculating the EMA yourself, here’s the EMA formula.ĮMA = (Price x K) + (1 – K)EMA Typically, all trading platforms will automatically compute the EMA for you, all you have to do is select the preferred price and the period. The average of the highest, lowest, and closing price in each period.The average of the open, highest, lowest, and closing price in each period.The average of the highest and the lowest in each period.When calculating the EMA, the formula can be applied to: The SMA is calculated by summing up the prices within a given range and then dividing by the number of periods within that range. It simply averages the price within the period. On the other hand, the SMA assigns an equal weighting to all price points within the selected period. As we’ve mentioned, the EMA assigns a significantly higher weight to the most recent price points. The difference between these two is in how they are calculated. The EMA and the SMA are the most commonly used types of moving averages, and similar trading strategies can be used with either of them. This means that the EMA is more sensitive to price changes and can be used to capture emerging trends more quickly. That’s why it’s sometimes called the exponential weighted moving average (EWMA). The exponential moving average (EMA) indicator is a variant of the moving average weighted towards assigning higher significance to the latest price points. This guide will discuss how you can trade with the exponential moving average (EMA). Thanks to their popularity, several variations of the moving average exist. Their popularity majorly stems from their simplicity and versatility – they are easy to calculate and use can be used to show both a price action’s trend and strength. Moving averages (MAs) are among the most popular technical trading indicators.
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