First of all, HI to all of you. This is my first post in this great forum, and I hope it will be a good addition. I’ve searched to find if it’s already been posted but didn’t find anything. So I’m sorry if this has been posted before.
Before I continue: This is not a trading system. However, it’s a great addition to ANY trading system (in my opinion ofcourse).
EDIT: I don’t want to steal the credit, those 2 EMA values were given by a professional Forex training company. They were part of a free guide, although not thoroughly explained. All points below are majorly based on my experience. Also, the guide mentioned that those values were aquired from elsewhere, so I guess those values have strong bases.
[B]Here’s the deal:[/B]
We add 2 Exponential Averages: 144 and 169, both applied to Close.
Those 2 lines will give you a [U]surprisengly very accurate[/U] resistance/support levels, retracement alerts, entry/exit signals and SL level.
They should work on any time frame, although I don’t think they are of much use on time frames above 4hours. They work great on 4H 1H 30M. I can safely say they work on any pair, although I really did not test them on every pair available, but for the common pairs, it works like a charm.
[B]How I use them:[/B] mainly on 4H and 1H. I don’t use them for entry signals, although I do use them for NOT entering (read example below). I use them to explain why the price is ranging at certain levels (if no other clear explanation present), I use them to exit trades, and if a reversal candle has formed near them, I enter in the opposite direction and “steal” few more pips from the retracement (ofcourse not “blindly”, my indicators should confirm). Ofcourse this little retracement could develop to be a nice trade, but that’s not related to the topic here ;).
[B]Example[/B] (also look at attached image): If my trade-system is telling me to go Long, I check those EMAs, if the Close is near them from bottom, I simply don’t enter the trade. (Usually, your trade-system shouldn’t tell you to go Long when the price has been trending towards the EMAs (long or short)… But false alarms do exist and those 2 EMAs eliminate A LOT of them.)
I want the price to be reasonably “far” from the nearest EMA, so I would have a decent amount of pips. That is, ofcourse, if the trade that I’m considering is in the direction of the EMAs.
EDIT: [B]Another Example:[/B] If you are like me, and you like looking for several candles that are resisted at a certain level, those 2 EMAs are excellent for that. I look for several candles to range between those 2 EMAs and I watch the Momentum “build” (positive or negative). When I have an entry signal from my specific trade-system, and the Momentum is facing the direction of the trade, I enter the trade. I only use Momentum when several candles are resisted and ranging, and I use it as a “more confirmation” IF I have an entry signal. (I know I’m drifting away from topic, but I wanted to share my view on the Momentum indicator. I use a value of 10 btw, for 4h and 1h)
[U]Don’t believe me, put those EMAs on your graph and backtest them! It’s very simple. Check how your trading system works with them. Satisfaction guaranteed :D[/U]
EDIT: Usually, there’s a significant gap between the 2 lines of the EMAs, this gap is part of the “problematic” area. Or in other words: your target can be any of those 2 lines, in most cases it is the far line from the price.
[B]Usages Summary:[/B]
- Good resistance / support levels.
- Explanation of why price is stuck at a certain level.
- Entry confirmation. Or more importantly as I see it: disconfirmation.
- Very reliable Exit point (the closer one of the 2 EMAs).
- An excellent retracement alerter.
- Could be used as SL, but I (almost) never do that, unless the Swing-Low / Swing-High candle is WITHIN the 2 EMAs, then I use the more far EMA from price in my SL calculation.
- A true break can lead to a very rapid trend.
[U]Certainly not a substitute for Fibonacci / Pivots and their likes, those are still your main “concerns” or targets. It should be added as extra help in your trading-system, certainly not to be solely relied upon.
[/U]
(The images I’ve chosen all show approaching from bottom, but it works the same for both directions. Also, I didn’t know about the 700pixel limit until I uploaded, I hope they are readable)
That’s it. So what do you guys think ?