Indicators on the Forex exchange serve to make life easier for traders. The most famous of them is the EMA indicator. It allows you to predict the trend and smooths quotation data. In conditions of increased volatility, this is important.
EMA is the most respected indicator.
The most beloved and popular tool among all investors is moving averages. At the same time, it does not matter whether the capital is large or small, this indicator will only bring benefits on any exchange asset and timeframe.
The EMA indicator is part of many trading strategies and makes it possible to filter out false signals in many cases. He has a keen reaction to market fluctuations and is therefore used by most traders in their techniques.
The last price of the product gives the most accurate reflection of the position of players on the Forex, which formed the basis for calculating the formula of the indicator rsi ema signals. The final value of an asset is more important than its other values, since the previous ones are not so significant.
EMA tool calculation
In order to calculate the necessary point on the timeframe, you should add part of the real closing price to the previous price. In practice, it looks like this:
EMA (t) = EMA (t-1) - EMA (t-1)) + 2 * (P (t), where:
- EMA (t) - exponential for a particular cycle;
- P (t) - price at which the previous Japanese candlestick closed;
- EMA (t-1) - the size of the previous segment to be measured.
Many traders do not study the rules for calculating the indicator, but only remember when it is worth using EMA, and when not. The main advantage of the indicator is its quick response, and if the traderโs system is based on entry at the moment when a new trend in the market is just emerging - you just need to correctly set the parameter for the timeframe on which the trade is taking place. You can find the description of the EMA indicator on the website of any Forex broker.
Custom values โโfor the EMA indicator
Like all indicators, to set the EMA on the selected chart, you can simply drag it from the window called "Navigator" directly onto the timeframe. You can also, by opening the "Insert" tab, go to the "Indicators" and there click on the desired item. Then, in the "MA Method" window, select Exponential. At the same time, you can immediately indicate at what marks the curve will go. You can build it by Low, High, Close and Open.
The indicator also contains a shift and a period. It is up to the trader to decide which parameters to set, depending on the chosen trading model, having previously understood how the EMA indicator works.
Find Moving Average in the list and drag it onto the price chart. You will see a window in which you need to change the type of moving average from Simple to Exponential. You also need to set the EMA period, in other words, the number of candles based on which the exponential moving average will be calculated. In addition to the usual setting of the required period, you can shift the indicator line by a certain number of bars. Such a simple function helps to approach working with the indicator from an extraordinary perspective.
EMA and Caesar Strategy
The well-known Caesar strategy uses the EMA indicator for the MT4 terminal, applying period 21:
- According to the slope of EMA21, this strategy reveals the direction and trend of the market.
- The intersection of the asset price with a moving one reflects a change in trend. The closer the angle is to the straight line, the stronger the trading momentum.
- When flat, the curve divides the chart in half and moves in a horizontal position, without giving trading commands.
- The intersection of prices and 21 is a signal of a change in the mood of bulls and bears.
Puria Method
The Puria Method is another Forex trading technique that, when used properly, can be quite profitable.
It uses an EMA indicator with a short period of 5.
At the moment of intersection of the slow weighted curves WMA95 and WMA85 with the exponential line, the current trend usually changes to the average term. When working on this technique, it is necessary to specify in the settings: "apply to" - Close.
Thus, the reflection on the EMA of the intersection of fast and slow moving averages is a signal for opening an order, which the indicator provides with the correct settings and proper application.
"Rainbow" - a strategy with three moving averages
When trading on Forex using moving averages that are used in various combinations, depending on the construction method, you can use several EMA indicators at once instead of one.
Such an example is the Rainbow strategy. She uses 3 moving. Many traders prefer this strategy and the EMA-indicator for binary options, considering it quite high-quality. Periods in the Rainbow are used with values โโof 6, 14 and 21. The lot is purchased at the intersection of curves with various parameters.
FX50 Strategy
This trading strategy uses a longer period than "Rainbow" and "Caesar", equal to 50.
The Forex EMA indicator in the FX50 strategy is an indicator of resistance and support levels, signals the presence of a trend in the market, and also gives commands for opening orders.
The fast moving line reflects how the trend changes in a short time, while the slow one rounds out small quotes and shows a broader price direction - rising or falling. When two lines or two trends intersect, a trade entry is possible. More precisely, when a fast Exponential Moving Average breaks a slow line from the bottom up, you can buy. Sell โโwhen EMA crosses from top to bottom.
Ways to use the EMA indicator
To understand how to use the EMA indicator, you should understand the principle of its operation.
Breaking through the EMA price is the most popular indicator application. So, a buy signal is when the price crosses the EMA from below, and when it crosses above, when it sells. This principle is explained by the fact that the price of the pair broke its average, and, accordingly, a new trend appeared on the market.
To determine the moment of entry into the market, most traders use the fast and slow moving periods of 21 and 100. In this case, you need to focus on the intersection of several EMA indicators with each other.
Moving Average EMA with a period of 50
- The angle of inclination suggests a trend.
- In vertical movement, indicates the presence of a side trend.
Is resistance / support:
- After the EMA breakthrough, the price most often comes back again and pushes off again, either from the resistance level in case of a bearish trend or from the support level in case of a bullish one.
- When using an EMA with a long period, these lines can be used on the charts as resistance and support levels (just by themselves).
With this approach, it is very simple to use the indicator:
- If, with an uptrend, the price value has dropped and reached the support level, then you can enter the purchase.
- If during a downtrend the price level has risen and touched the resistance level, then you can enter the sale.
- Conducts a cross analysis of only fast or slow lines.
- The intersection with the asset makes it clear that there is a change in market position.
- The intersection of slow and fast movings is a signal of sale or purchase.
- Helps analysis when crossing lines that differ by their construction method. Such as EMA + WMA + SMA.
- Used with technical analysis indicators inside models.
Period settings are selected for each time interval individually. Works best on intervals H1 and H4. Since each trader chooses a trading strategy for himself, it is advisable to deal with all the Moving Average in order to choose the one that is most suitable.
Many traders use the EMA indicator to set stop losses. They are usually placed behind the line. In order for the indicator to be used with the least number of errors, it is necessary to carefully adjust its parameters. So, small timeframes do not require large values โโof the EMA period, when hourly, daily, weekly and higher charts will work more correctly already with longer periods in the indicator settings.
Disadvantages of the EMA indicator
The weakest point of the EMA is the flat. During a lingering relative lull in the market, the price often and chaotically crosses the moving in different directions and this confuses the understanding of signals. During this period, many inexperienced traders โcatchโ stops and lose money.
To avoid such a problem, it is recommended that you always use the EMA with other tools to insure and more accurately identify false signals. On the site of the Forex broker Olimp Trade, a whole section is devoted to the EMA indicator, in which there is all the necessary information on setting up and using.
The EMA indicator is also used as a specific filter of trading trends in the market. It is generally accepted that when the price is found, the bulls dominate over its average value. When using EMA as a trend indicator in the settings, set large values โโfor the period. The most popular is 200. Sometimes traders pay attention to the angle at which the indicator line is inclined. It is believed that if the angle is very steep, then there is a powerful price surge in the market. It is considered optimal when the line passes not at a too steep angle.
The difference between EMA and other MA
Moving simple is like a trip in which you have to either go in a straight line, then climb uphill, then dive to the bottom of the sea, or fly by plane from one continent to another. And only the average time spent on the whole journey is taken into account.
Moving weighted is more like moving along stairs. More important is the place where the price is located or the step where you need to go up. The steps that have already been passed are no different from those that lie ahead.
The EMA indicator can be compared with climbing uphill. Sometimes the path is direct and simple, sometimes it turns into a serpentine, sometimes gentle, sometimes steep, but only the place where the price is located now matters. The distance traveled is completely irrelevant.