
Doji candles are rare birds, but if you catch them, it can be a great chance to seize the right entry moment. This article will discuss what a Doji candle is. You will also get a Doji strategy that can bring profit.
2022-05-30 • Updated
In case you wondered, moving averages are not just some colorful lines on your chart. They may actually be a great tool used in your trading strategy. Today, we will learn something new about one specific type of moving averages, which is called exponential moving average.
Simple MA vs exponential MA
As you may know, there are four types of moving averages: simple, exponential, smoothed and linear weighted. The main difference between them lies in the sensitivity to changes in the data used in their calculation.
The exponential moving averages (EMA) provide a higher weighting to recent prices, while the simple moving average (SMA) gives equal weighting to all values. Since EMA gives a higher weighting to recent data than to older data, they are more reactive to the latest price changes than SMA. That is why some traders prefer this type of moving average.
The EMA’s calculation is a little bit more complicated than the calculation of the simple MA. At first, you need to calculate the simple moving average.
SMA = the sum of the closing prices for the number of time periods/the number of periods
Then you need to calculate the multiplier for smoothing/weighting factor for the previous EMA.
Multiplier= 2/(the number of periods+1)
Finally, you’ll get the exponential moving average for the current period.
EMA for the current period= (closing price- EMA for the previous period)*multiplier + EMA (previous period)
You may use SMA as the EMA for the previous period if you calculate the EMA for the first time.
Thanks to the era of technologies, we do not need to calculate the moving averages by ourselves. The computer does it for us. To apply the exponential moving average to your chart in Metatrader 4 you need to choose Insert – Indicators – Trend. Then you need to click on the button “Moving Average” and change the MA method to Exponential.
Trading with the EMA
There are different ways to use the EMA for trading. Let’s find out the most common strategy where the exponential moving averages may help you.
1. They can provide a buy/sell signal
The strategy listed below is perfect for scalpers.
A strategy to open a long position:
On the picture, we applied brown 13-period EMA and orange 21-period EMA to the 5-minute chart of AUD/USD on February 25. When the brown line crossed the orange line to the upside, the pair started to go up. For example, you entered a long position at 0.7162 with a stop loss at 0.7155. Then you waited for the brown EMA to cross the orange EMA upside down and closed your order at 0.7173.
Vice versa, if the brown line (short EMA) crosses the orange line (long EMA) to the downside, this may signal an opportunity to open a short position. You need to close your position when the short EMA crosses the long EMA to the upside.
On the same chart, the crossover of two EMAs on February 21 helped you to open a short position at 0.7097 with a stop loss at 0.7104. You waited for another cross and closed your position near the support at 0.7077 3 hours later.
2. It can be used as dynamic support and resistance
Sometimes the exponential moving averages may be used to set the support and resistance levels.
On the 5-minute chart of AUD/USD, we can see that the price can find the support and resistance around the 10-period EMA. The EMAs always move up or down depending on the price action. They may be helpful, but tricky as well. We highly recommend you to follow price action instead of blindly placing supports and resistances around these areas.
Be careful!
The main disadvantage of the exponential moving averages is that they increase the risks of fakeouts or irrelevant signals. That is why you need to take into account the current trend and price action before making any trading decision.
Conclusion
The Exponential moving average is a very useful indicator, which may help you to build your trading strategy, especially if you are a scalper. Clever implementation of the EMA will increase the opportunity to earn profits and to eliminate risks.
Doji candles are rare birds, but if you catch them, it can be a great chance to seize the right entry moment. This article will discuss what a Doji candle is. You will also get a Doji strategy that can bring profit.
Financial markets alternate between periods of decline and growth. They are related not only to the economy, but also to the psychology of investors.
The Cypher pattern isn’t the most famous trading formation. Nevertheless, this trading instrument can help you better understand and forecast the price moves.
Click the ‘Open account’ button on our website and proceed to the Personal Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading.
The procedure is very straightforward. Go to the Withdrawal page on the website or the Finances section of the FBS Personal Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.
If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.
Open Level Up Bonus account in web or mobile version of FBS Personal Area and get up to $140 free to your account.
FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.
Your request is accepted.
A manager will call you shortly.
Next callback request for this phone number
will be available in
If you have an urgent issue please contact us via
Live chat
Internal error. Please try again later
Don’t waste your time – keep track of how NFP affects the US dollar and profit!
Beginner Forex book will guide you through the world of trading.
We've emailed a special link to your e-mail.
Click the link to confirm your address and get Beginner Forex book for free.