Hello All,
I am new to Forex trading, I would like to know what should be the length for EMA for different time-frame?
like (5,20 and 50) for 1 hour and (10,20,60) for 4 hrs so on
Also, If I am using EMA and any other indicator for example Bollinger Bands then is it must to use same period number for all indicator? For example 20 for EMA and BB.
Many thanks in advance.
Hi Atifharif and welcome,
There are no specific EMA period values relating to specific tfs. It all depends on your strategy and what you are trying to achieve. For example:
The HLHB Trend-Catcher System by Hucklekiwi Pip (see blogs) uses a 20 EMA and a 10 EMA on a 1H chart . And I read that she also applied the same method to the 4H chart using the same MA values.
But the 3 Ducks system by Capt Currency uses a combination of a 60 SMA on the 4H, 1H and the 5 min charts.
If you are looking for quick small profits on a low tf like 5 mins then generally a short ema (or combination of) is better as it obviously responds faster. The downside is the high risk of fake signals, which can be multiple and highly damaging in quiet, mildly turbulent, markets.
If your strategy is looking for longer term moves with bigger gains then generally a longer period ema is better as it does not give so many interim reverse signals that will throw you out of your position too soon.
It also depends what you are using the ema’s for. Sometimes they are used as entry/exit signals whilst others such as PA traders might use a longer term MA just to identify/confirm an underlying trend and its current strength whilst using, say, S/R levels for actual entry/exit.
The values used for BB and your MA’s does not have to be the same. Again it is a question of what you are using each of these indicators for.
Thanks Manxx , it really helped me to understand some basic points.
It is also worth remembering that these are termed “indicators” and that is a very realistic description. They are only a tool that provide an indication of what might be going on.
They are often criticized as being useless because they are “lagging” indicators. But that is precisely what they are designed for - comparing current price levels with earlier levels whilst smoothing out the individual “noise”.
They can highlight when price action is, on average, starting to move move significantly in a certain direction compared with earlier movements, which maybe then evolve into a trend.
They can help identify an overall underlying upward or downward tendency amidst all the random appearance of the constant price zigzags.
They can help show when a current trend is losing its momentum and maybe reversing.
It is also worth remembering that strategies based solely on MA crosses for both entry and exit do not work long term because they require a substantial price movement to a) create the cross entry and b) create the cross exit whilst leaving sufficient profit in between these two actions. This is fine in strongly trending markets, but most markets spend the majority of time ranging which causes these types of strategies to give back all their gains and usually more…
Just a few thoughts…
In my trading, I use 20EMA for H4! During trendy market I get good signal from this dynamic trading tool.
No, there is nothing like fixed rule! You can change the parameters according to your result!
Mainly, I am a PA trader! I also used EMA20 but now I am using EMA8! This parameter is more active than 20.
I use two EMA’s in the classic way, to confirm trend direction. As you might expect, one is a short period, the other longer: actually they are are 20 and 50 in my case but these are not magic numbers - as long as one is considerably longer than the other and the shorter EMA doesn’t flip too frequently that’s fine.
But I also use the results of the EMA prints on the charts to compare the relative attractiveness of different trends. There’s a wealth of information you can get from two EMA’s in this regard -
is the 20 above or below the 50?
is the 20 sloping upwards or downwards?
is the 50 sloping upwards or downwards?
are the two EMA’s diverging or converging?
how long is it since the 20 crossed the 50?
how many times has the 20 crossed the 50 in the last 60 days?
how many times has price breached the 20 intra-day in the last 60 days?
how many times has price breached the 50 intra-day in the last 60 days?
is price above or below the 50?
etc.
You could look at these factors and give each a score of 1 point. Or you could weight each factor with a different number of points. Either way, the trend with the highest points score is the most attractive for your strategy.
I’ve found that adding a third EMA (for which most people would select the 200) multiplies the amount of information but the quality of decisions whether to trade or not doesn’t go up so much.
Obviously, I don’t think using different time durations per EMA on different pairs would make for valid trend comparisons.
One question, are you using moving average crossover trading strategy? Or only EMA8?
No it’s not crossover trading strategy, I use only EMA8.