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EMA (Exponential Weighted Moving Average) Cross Over System

Discussion in 'Forex Trading Systems and Strategies' started by MattyUSA, Oct 7, 2007.

  1. MattyUSA

    MattyUSA Private

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    Hi

    Not a new system, nor a particularly good one. But it may help some other newbies.

    EMA (Exponential Weighted Moving Average) Cross Over System.

    Setup 30 minute chart.
    Add indicators: EMA(8) and EMA(64)
    EMA(8) = Exponential Weighted Moving Average,periods set to 8.
    EMA(64) = Exponential Weighted Moving Average,periods set to 64.

    When the two lines cross trade in the direction of the trend. Exit the trade then they cross again. You can confirm the trend with:
    RSI(14) = Relative Strength Indicator periods set to 14. If the RSI is above 50 then chances are bulls are in control (go long, buy), below 50 and the bears have it (go short, sell). Thanks to mamkeji (below) for reminding me of this indicator.

    Has worked for me a number of times however care has to be taken since the lines can cross back and forth without any real profit. So automated trading with this is out. You have to wait a few candles or use other indicators to be sure it is a strong trend starting when the lines cross. I guess in theory it might be better on longer time frames (it is interesting to see the cross overs increase the shorter the timeframes get).

    It seems to work best on a 30 minute chart. The pitfalls of this approach is it is easy to get duped into trading with a crossover that quickly reverses direction and your spread will have been the loss. I guess it'd suit a system with tight spreads better than one with bad spreads.

    I only trade GBP/USD and EUR/USD. However it shouldn't matter which pair you used. I'm reasoning the key is volatility.

    This strategy, I think, should work best with the least volatile currency pairs.

    I'm reasoning this because it is the small market swings (volatility) that trigger the cross overs that don't go grow into a trend.

    In addition: The longer the time frame the more the crossovers seem to reduce and the shorter the time frame the more they increase.

    My guess is the safer you want the strategy the longer the time frame you use.

    It is a simple strategy told to me by the sales guy at GFTForex before I moved on. I know there are better strategies out there (and hope to learn them). I'm also aware it should be possible to improve the strategy with other qualifiers for the crossover points and am interested on anyone else's suggestions.

    I wanted to post it here because this forum needs strategies posting in order to help newbies like me.

    The chart attached shows optimum buy sell points using this strategy and ignores the small crossover blips that would have cost money if the strategy had been followed strictly as described with no other indicators to help determine the trends.

    Hope it helps.

    Regards,
    Matt
     

    Attached Files:

    #1 MattyUSA, Oct 7, 2007
    Last edited: Oct 15, 2007
  2. mamkeji

    mamkeji Recruit

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    Use RSI to confirm

    U could use RSI 14 to confirm the trend. For instance if you RSI 14 line is above 50 then u know you should go long, also if it below 50 then it is a confirmed bearish trend. I hope this helps you to make ur entry decision easier:)
     
  3. MattyUSA

    MattyUSA Private

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    Thanks. I've added it to the strategy above. I have actually used RSI before but for some reason didn't think to combine it here at crossover points.

    Matt
     
  4. joeojeabulu

    joeojeabulu Recruit

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    more clarification

    i realy enjoy your great strategy.As you have given the best time frame ,which currency pair does it work best for?.:cool:
     
  5. MattyUSA

    MattyUSA Private

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    Hi joeojeabulu

    Good question. I'll update the strategy above with this info as well.

    I only trade GBP/USD and EUR/USD. However it shouldn't matter which pair you used. I'm reasoning the key is volatility.

    This strategy I think should work best with the least volatile currency.

    I'm reasoning this because it is the small market swings (volatility) that trigger the cross overs that don't go grow into a trend.

    In addition: The longer the time frame the more the crossovers seem to reduce and the shorter the time frame the more they increase.

    Try looking at the number of cross overs for the one minute charts verses the 60 minute charts or daily and so on. Not always but often the shorter the time frame the greater the cross overs (especially the small costly ones). My guess is the safer you want the strategy the longer the time frame you use. Of course none of us can wait forever for the next crossover so its a balancing act.

    Best Wishes,
    Matt
     
    #5 MattyUSA, Oct 9, 2007
    Last edited: Oct 9, 2007
  6. dnrammohan

    dnrammohan Recruit

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    Thanks to Forexbastards.com/Mr.Felix Homogratus/SecretForexSociety.com

    Hello Sir,

    Thank you very much for giving me an opportunity to become a member in your Forex Currency Trading Forum and the service which you are providing and I would like to inform you that I am very raw to this forex business and after going through your news letters and tips now I am having some confidence that I can do this forex trading cofidently.


    Thanks


    dnrammohan
     
  7. dnrammohan

    dnrammohan Recruit

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    hi matty

    Thanks for sharing your experience. it is quite useful for beginers like us. thanks a lot. keep posting some good ideas and share your experience with us. thanks a lot once again. good job,

    d.n.rammohan
     
  8. egg

    egg Recruit

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    Matty and Mamkeji,
    Really appreciate for your sharing.
    wish you the best!
     
  9. MattyUSA

    MattyUSA Private

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    Hi Chaps,

    I don't mind sharing. So thanks for the thanks. Hopefully others will post more feedback and it can be improved.

    Just to explain the gist of it a little further.

    The EMA simplifies the trends and makes the movements easier to read. The shorter the short term EMA (8 in this case) the closer it follows the activity. It shows smaller and smaller movements the lower the EMA value gets.

    The longer the EMA the more small movements are 'ironed' out and not shown. It only follows the larger trends/movements. It lags behind the current 'value' a tad.

    The downside of the EMA(8) and EMA(64) approach is that you can often lose profit pips as it climbs back up/down to cross over.

    But you can experiement with the EMA values to find the combination that works best for you, your charts and currancy pair. The trick is to keep one small and one larger.

    Happy pipping.

    Regards,
    Matt


    PS: The other strategy that has actually turned out more profitable for me is the Volitility Exploitation System I posted. It has higher risk but has taken $300 to $900+ in a few weeks. Not a single person has replied to that posting so I'm guessing the words 'high' and 'risk' put many people off.
     
  10. kamoro

    kamoro Private, 1st Class

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    Hello Matty

    I am a newbie and a bit lost.
    Can you please advice which site you are using for the EMA values ?
    Thanks
    Kamoro
     

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