Wednesday, June 10, 2009

EMA Trend Detection Strategy

I use this Trend Strategy a lot. EMA lines can serve as a guide to let you know whether a trend is strong, still going, weak or ending or reversing. It can also tell you about retracements.

My trend strategy goes like this.

First, I set the following EMA lines:
1. EMA 80
2. EMA 50
3. EMA 21
4. EMA 18
5. EMA 5

Then, I make the analysis based on the lines. To understand more clearly the details below, please open your charts and insert the 5 EMA lines above.

EMA 80 and 50 will tell you the trend direction. If the lines are not touching the price chart, the trend is valid. When the lines are at the bottom, it is an uptrend and when the lines are at the top, it is a downtrend. A good indicator that you can still follow a trend is when you see that the lines are in order: EMA 80, 50, 21, 18 and 5. When some lines criss-cross, the trend maybe reversing or maybe just retracing a bit. And if you happen to see that the trend is criss-crossing, especially the EMA 5 line crossing 21 and 18, it maybe a good time to trade to get maximum profits from a retracement. However, if the EMA 5 line crosses over 50 and 80, with the EMA 21 and 18 crossing each other as well, it is a sign that something is not quite right. Maybe a time to exit trade and not a good time to start a new trade based on this strategy.

I find that this strategy works best with longer-term trading.

• Posted by josh at 23:39:50 in Trend Strategy
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