What’s the difference between EMA and MA? What EMA indicates?
To better understand what EMA is, you need to look at its fundamentals. EMA is a derivative of the basic moving average or simple moving average (SMA).
SMA is calculated by taking the closing, opening, high, or low price of an asset over a period of time, adding them and dividing them by the period.
For example, if the price of a 3-day stock is $25, 30, and 28, then the SMA is $27.
Exponential moving averages, on the other hand, tend to reduce the lag provided by SMA. It does this by adding more weight to the recent price of the asset.
In this, the EMA for today’s asset depends on the EMA calculation for all the previous days. The graph below shows Tesla’s 50-day EMA (blue) and 50-day SMA (green).
How to calculate EMA using MA?
The process of calculating the EMA is different from the SMA. There are three key steps in calculating this indicator:
- Calculate the SMA of period you are focusing on. In this, you just add the values and then divide by the periods.
- Calculate the weighting multiplier. You do this by using the following formula: [Multiplier = (2 / (Time Periods + 1))]
- After that,calculate the EMA for each day using the closing price, the multiplier, and the previous day value.
The third step is calculated as shown below:
EMA = (Close — EMA (previous day)) x multiplier + EMA (previous day)
Practices to use EMA in your trading:
EMA tells traders some things. For example, if the price is trading at the same level as the EMA, it is a sign that there is no volatility in the market. You can check the lack of volatility using other indicators like Bollinger bands and Average True Range (ATR).
Second, the EMA can tell you whether an asset is expensive or cheap. For example, if a stock is traded on trading at $50 and the 25-day moving average is $20, it is a sign that it is maybe overbought. It usually happens because of major things, such as strong news or strong events.
The graph below shows that Chevron Corp. stock price was well above the 100-day moving average, which is a bit expensive.
Third, the Exponential Moving Average (EMA) can tell you whether a trend will keep rising or have a reversal. In an uptrend, if a stock remains above the EMA, it is a sign that the bullish trend seems to continue. On the other hand, if a stock crosses the average, it is a sign that a reversal may start.
How to read moving averages (MA) and how to use them
When learning how to use technical analysis in trading, one of the first things a trader needs to understand is moving averages.
Moving averages can be used in a number of ways, and there are many different types to choose from.
But what are they and how do traders use them? In this guide, we’ll explain what moving averages are and how to use them in a trading strategy.
Table of contents
- What are moving averages (MA)?
- Why do we need moving averages?
- How to calculate moving averages
- Natural moving average
- How to use moving averages
What are moving averages (MA)?
Moving averages are a trend-following indicator — with their values and movement based off of past prices. This means that the MA cannot warn traders about future price movements, but would come in handy when identifying trend changes. In technical analysis, the moving average (MA) is one of the most commonly used tools.
Traders may be wondering why the MA would be helpful. It is mainly because it smoothes out price action and prevents short-term price fluctuations by filtering out the “noise”. This means it’s essentially calculating the average of the highs and lows of the price for a set number of periods, using historical data from price movement. This is plotted alongside the price on a line, and it constantly updates itself as the price changes.
Types of moving averages
There are 2 main types of moving averages that are commonly used:
- Simple Moving Average (SMA)
- Exponential Moving Average (EMA)
What is the difference between the simple moving average and the exponential moving average?
The main difference between the SMA and EMA is their speed. This is because, in its calculation, the EMA gives more weight to the most recent price action and less weight to older price action. When the price changes direction or spikes/dips, the EMA recognises this sooner, while the SMA takes longer to turn when the price turns.
Given that the EMA is closer to price changes, the SMA produces a smoother line compared to the EMA. However, the EMA will always move more closely to the current market price.
This table below summarises simply when it’s best to use the EMA and SMA:
| Last price | SMA | EMA |
|---|---|---|
| 21 | 15 | 16.0908 |
Note: There is also Weighted Moving Average – which essentially functions almost similar to the Exponential Moving Average.
- Read more — Best technical indicators: 17 Most used trading indicators every trader should know
Why do we need moving averages?
We need the moving average (MA) to identify trends and confirm reversals. We can decipher where the price is trending based on where the MA is in relation to price.
- Price above MA = uptrend
- Price below MA = downtrend
- Breaking of MA = trend reversal
I’ll explain what we mean in the illustration below:
As seen from the image above, when the price crosses a moving average, it signals that there is a reversal in trend. Oftentimes, the price will find support at MA when the trend is up, and resistance at MA when the trend is down.
We can broadly decipher that:
- When the price is above MA, it signals an uptrend and may be a good time to buy
- When the price is below MA, it signals a downtrend and may be a good time to sell
How to calculate moving averages
Traders may be wondering why there is a need to know how the different moving averages are calculated when they can just pop them onto their charts with a click. We’ll explain why.
Why it’s important to know the moving average calculation
This applies to any other indicator out there — understanding how an indicator works means a trader can adjust and create different strategies as the market environment changes.
It’s true, indicators are usually always calculated and plotted nicely onto the graphs for a user. However, by understanding how each moving average is calculated, it will help traders identify the right MA to use, and know what settings to tweak so it yields more accurate results.
That makes sense, right?
How to calculate the different moving averages
As we mentioned above, there are 2 main types of moving averages. They are the Simple Moving Average (SMA) and Exponential Moving Average (EMA).
Let’s say we want to calculate the MAs of a 10-day range.
The SMA will take all the prices within the past 10 days added together, and divide by 10 to give the average.
The EMA, on the other hand, will weigh the difference between the current period’s price and the previous EMA and add the result to the previous EMA — so that the most recent price will take more weight while the older price is weighted less.
Let’s calculate this together with the following data set of 10 prices:
$10, $11, $11, $12, $14, $15, $17, $19, $20, $21
Simple moving average calculation
To calculate the SMA, we add all 10 prices together and divide it by 10 —
10 + 11 + 11 + 12+ 14 + 15 + 17 + 19 + 20 + 21 = 150
Then just divide it by the number of periods — in this case: 10.
Hence, we can conclude that the 10-day period SMA is $150/10 = $15
Exponential moving average calculation
To Calculate an EMA, we use this 3-step formula:
- Calculate the SMA
- Calculate the multiplier for weighting the EMA
- Calculate the current EMA
Using the previous data set of 10 values, we have established that the SMA is $15.
Let’s calculate step 2.
The formula for calculating the weighting multiplier looks like this:
Weighting Multiplier = 2 ÷ (selected time period+1)
Weighting Multiplier = 2 ÷ (10+1)
Using this, we can now calculate our EMA using this formula:
EMA = Price(t) × k + EMA (y) × (1−k)
N=number of days in EMA
Adding our figures into the formula,
= 21 x 0.1818 + 15 x (1-0.1818)
= 3.8178 + (15 x 0.8182)
A quick comparison:
| Last price | SMA | EMA |
|---|---|---|
| 21 | 15 | 16.0908 |
What time periods should we use in the calculation? We can see that the EMA is closer to the last price than the SMA. This is due to the fact that the rise in price in our data set was calculated with a heavier weightage in the EMA than the SMA.
In the example above, we calculated both the SMA and EMA with 10 days’ worth of data. This makes it a 10-period SMA / EMA.
When calculating moving averages, the time period used should depend on how closely the trader wants to follow the trend.
This table should provide a good estimate:
| Trend | Length |
|---|---|
| Short-term trend | 10-30 periods |
| Mid-term trend | 50 periods |
| Long-term trend | Up to 200 periods |
Of course, study the charts well before deciding how many periods work best for the technical analysis being conducted. We will cover more about that in the next chapter! Most traders use 50-day, 100-day, and 200-day periods as they help identify the most significant long-term support and resistance levels. Using a larger number of periods allows more data to be studied, allowing for a more unbiased view of the overall trend.
Natural moving average
In this section, we will explain what the natural moving average is and how it differs from the SMA and EMA which we discussed earlier.
What is the natural moving average and why do you need it?
We believe that each market has its own unique characteristics. This means that using generic default settings may not yield accurate results. In order to accurately derive conclusions from the trends in the market, there should be a unique moving average to cater specifically to that market.
As we mentioned earlier, many traders stick with the default 50, 100, and 200-time frames. However, this will not always be accurate. Natural moving average enthusiasts believe that by finding a market’s natural moving average, they are able to catch the support and resistance areas more accurately. This is done with a combination of the Golden Ratio (Fibonacci Numbers) and past price movements.
How do I use the Natural Moving Average?
It is important to note that Natural Moving Averages only work in trending markets. It does not work in a sideways-moving market.
It is also important to note that the Natural Moving Average is not a different way of calculating the Moving Average, but an application of the existing Moving Averages. This means that this concept can be applied to both the SMA and the EMA.
The natural moving average is Fibonacci-based. All that is needed to know is that Fibonacci is a mathematical sequence that is strong to the golden ratio – these numbers have been proven to be naturally occurring, most pleasing to the eye, etc. These numbers are ingrained into the core of our earth and being, and Fibonacci essentially projects that market movements are likely to follow this sequence (or at least have a tendency to be drawn towards them). Learn more about Fibonacci here .
In order to use the natural moving average, traders must first know the Fibonacci numbers.
The Fibonacci Numbers are:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, 6765, 10946, 17711, 28657, 46368, 75025, 121393, 196418, 317811, .
What traders essentially have to do is apply for each Fibonacci number by trial and error into the chart’s EMA or SMA time-frame settings. (Whether they use the EMA or SMA depends on which one they feel is most applicable to the asset they are analysing.)
By trial and error, traders identify which Fibonacci number provides the MA line with the most number of price touches, without price breaking above/below it. Also, the price should not be too far away from the line – if that is the case, the time frame used may be too large.
Let’s illustrate this with USDJPY, 8hr chart as an example:
Step 1
First, let’s identify the trends. As mentioned before, the natural moving average only works in trending markets.
As seen above, 4 main trends have been identified using the Golden arrows.
Step 2
Now, take note of the placement of these trends, as a trader will have to put on a Moving Average indicator and start toggling the time-frame settings to find which number will produce a line that best follows the market.
For this example, we will use the Exponential Moving Average Indicator.
Step 3
Once the indicator is on the chart, begin testing the Fibonacci numbers to look for the Natural Moving Average. The Natural Moving Average should not be too tight nor too loose – since the MA functions as a support or resistance line, the MA should sit nicely along the trends with as many points as possible bouncing off it.
By default, the length (or time frame) is set at 9. Observing the blue line in relation to the candlesticks in the graph, this line is too tight – it is moving too close to the price. As we learned previously that MA should help us reduce the “noise” in the market, having a small time frame does not reduce the noise. From this, we know we need to try a bigger time frame.
Here are some Fibonacci numbers bigger than 9 that we can try:
13, 21, 34, 55, 89, 144…
Step 4
For a start, let’s try 89.
The screenshot below shows what the EMA looks like when the period is set at 89
As we can tell, 89 is probably too wide a time frame as the price does not touch the start, middle, and end points of the big trend identified by Golden arrows 2 and 3. So we are ruling out both 89 and 144. And next,
13, 21, 34, 55, 89 , 144 …
Step 5
Let’s try a smaller time frame to see if it may be better. The screenshot below shows the EMA with a 34-time frame.
As seen in the screenshot, the price bounces off the EMA at multiple points (in yellow boxes) within a trend. Where a trend is continuing, the price does not break the EMA. This seems to be most accurate at the downtrend, as we can see from the circled portions – 2 of the 3 are on the downtrend.
From this, we can safely say that in a downtrend, 34 is a strong natural moving average for USDJPY in this particular time frame. Note that prices change over time and we, as traders should remain adaptable and flexible to any market condition.
This is a pretty straightforward concept, but also a very useful one. Once traders grasp it, they can apply it to any graph out there.
How to use moving averages
Find out in the next section how to use moving averages and the main ways traders use an MA to identify signals.
Types of interpretation for moving averages (MA)
There are 3 main ways of using the Moving Averages for signal generation:
- Price Crossover
- Moving Average Crosses
- Indicator Crosses
Each of these crossovers can be used in both bullish and bearish scenarios. The differences between these 3 ways are the matching of different elements with the Moving Average (MA).
Price Crossover
This method is a combination of the Price data and the Moving Average. It is the simplest and most popular method of interpreting a moving average.
In the example above, using the USD/JPY chart at the 2-hour timeframe, with a 50-period SMA represented by the Blue line. When the candle indicated by the red arrow closes beneath the blue line, the price continues to head in a bearish direction. And when the candle indicated by the green arrow closes above the blue line, the price continues to head in a bullish direction.
Moving Average Crossover
This method is the combination of Multiple Moving Averages. Where a signal to take action is generated when the lines cross each other on the price charts.
In this example above, we are using 2 Moving averages. A 20-period Moving average (Orange Line) has been added on top of the 50-period Moving average (Blue Line). You can see that the orange line moves closer to the price. And the signal for bullish momentum is spotted when the orange line crosses above the blue, and bearish momentum is spotted when the orange line crosses under the blue.
As indicated by the yellow boxes on the image, how much bullish and bearish momentum is spotted? (Hint: 2 bullish, 2 bearish)
Indicator Crossover
Last but not least, we have the indicator crossover which is a combination of putting a Moving Average (MA) into an indicator.
In this example, we have a Rate of Change(20-period) indicator underneath the price chart. And now, we will be adding a 50-period MA into the ROC indicator window, instead of the price chart.
The 50-period moving average is represented by the smooth red line, while ROC is represented by the Light Blue line. And a signal is generated every time ROC crosses the 50-period moving average.
A bearish signal is generated when the ROC crosses above the 50-period MA, notice how the price continues to drop further as ROC remains under the 50-period MA.
A bullish signal is generated the moment ROC crosses back above the 50-period moving average. Traders can also adjust the sensitivity of the Moving Average and Rate-of-Change to generate more signals if the market is not trending in big moves like this example.
Why is the moving average indicator so popular?
The moving average indicator is one of the most popular indicators in technical analysis, used by investors and traders alike. This is partly due to the fact that moving averages are relatively simple to understand and use, requiring minimal knowledge of statistics or other complex mathematical concepts. But the popularity of moving averages can also be attributed to the fact that they can be a highly effective forecasting tool, providing valuable information about likely future trends in prices.
What is the best moving average indicator for forex traders?
There is no single moving average indicator that is universally considered to be the best for forex traders. Each indicator excels at certain trading objectives, and selecting the right one for a trader’s needs will depend on their preferred trading strategy and risk tolerance. One popular moving average indicator is the simple moving average, which tracks an average value of a price over a set period of time. This type of moving average is ideal for identifying trends in short-term price movements and can be especially useful when used together with other indicators or technical analysis tools.
What is the best moving average crossover combination?
When it comes to moving average indicators, there are a number of different combinations that can be used to achieve better trading results. Perhaps the most popular moving average crossover combination is a moving average of 10 days combined with a moving average of 20 days. Both moving averages are typically plotted on a graph, with prices moving up and down over time to indicate market trends. When these two moving averages intersect in such a way that the shorter moving average crosses above the longer moving average, this is called a bullish crossover.
Desmond Leong runs an award-winning research team (2019, 2020, 2021 Finalists for Best FX Research and Best Equity Research) advising the largest banks and brokers on where the markets are heading. He specialises in technical analysis with a focus on Fibonacci, chaos theory, correlations, market structure, and Elliott Wave.
Desmond is incredibly passionate about helping people become better traders — working closely with Axi to produce educational videos, quizzes, e-books, indicators, and market research to help traders take their game to the next level. His team is also behind the Axi VIP portal, dedicated to continuing to guide and educate traders.
Что такое скользящие средние индикаторы MA и EMA в трейдинге
Коррекции и возврат рыночной цены до уровней своих скользящих средних можно использовать в качестве точек входа в рынок и действовать по направлению основной тенденции. Основным условием для возникновения данного сигнала технического анализа, является наличие устойчивого восходящего тренда. То есть скользящие средние должны выстроиться в “правильном” порядке, который свидетельствует о наличии сильной рыночной тенденции. В момент когда ценовой график пересекает скользящую среднюю снизу вверх — открываем сделку на повышение(лонг) Для подтверждения сигнала побивающая свеча должна закрыться выше сигнальной линии.
Какая скользящая средняя лучше?
После откроется окно с настройками индикатора, проводим настройку и кликаем «ОК». Для каждого инструмента необходимо подбирать свой рабочий период и периодически менять в зависимости от фазы рынка. Минусы ● Очень запаздывающие сигналы — тренд давно сменился, а мувинги только пересеклись. ● При открытии с ГЭПом очень часто проскальзывают ложные сигналы. Стандартное, двойное и тройное сглаживание скользящей средней. Кроме SMA широкое распространение получили следующие варианты индикатора, считающиеся стандартными и присутствующие в большинстве торговых платформ.
Экспоненциальная скользящая средняя
Доходность по таким сделкам небольшая, но сигналы появляются довольно часто. При долгосрочном определении тренда SMA с периодом 100 или 200 дней обычно выступают в качестве сильной поддержки или сопротивления. Это и не нужно для практической работы на финансовых рынках. Трендослежение предполагает использование простых алгоритмов, в основе которых может лежать скользящая средняя с ее простыми сигналами. С ними станет понятно, какая настройка для каких таймфреймов подходит лучше всего.
Например, наиболее известный цикл фьючерсного рынка состоит из 22 дней — это примерно календарный месяц. Более крупный цикл в два раза длиннее, чем 22-дневный, а более мелкий — в 2 раза короче. Именно отсюда появились популярные периоды скользящих средних — 22, 11, 5.
Пересечение скользящей средней и цены
Самая любимая скользящая средняя любого технического аналитика — Экспоненциально сглаженная. Скользящие средние – это полностью настраиваемый индикатор, вы можете выбрать любой период. В настройке скользящих средних все зависит от вашей торговой стратегии, наш материал о способах настройки Это просто обзорный материал о том, как можно это все настраивать. Скользящие средние считаются одним из самых популярных и простых индикаторов технического анализа.
Трейдер выбирает временные рамки в зависимости от конкретного тренда, которой он старается использовать для торговли. Важно отметить, что чем больше периодов используется, тем более плавным будет среднее значение. Первый и самый распространенный вариант — открывать сделки при пересечении графика цены и индикатора. Пример — на 5-минутном графике акций Alibaba Group, мы используем SMA с периодом 22.
Пересечение скользящих средних
Таким же образом могут рассчитываться скользящие средние за 20 месяцев, 20 недель, 20 часов, 20 пятиминуток и так далее. Это технический индикатор, используемый для отображения средней стоимости актива за определенный период. Он предназначен для сглаживания «шума», создаваемого случайными колебаниями цен.
- Это может быть сделано просто путем сравнения соотношения между скользящей средней и текущей ситуацией на рынке.
- Построение скользящей средней происходит как среднее арифметическое по ценам закрытия за определенный период времени.
- Чтобы сделать график свечным, нажмите на вторую иконку слева под графиком.
- На 15-минутном графике валютной пары USDCAD мы видим, как пересечения экспоненциальных скользящих средних EMA 3 и EMA 12 дают сигналы на покупку и продажу.
Скользящие средние – это запаздывающие индикаторы, которые сглаживают колебания и шум, тем самым помогают трейдерам видеть текущий тренд финансовых активов. Мы используем куки-файлы, чтобы улучшить ваше восприятие нашего сайта. Просматривая наш сайт, вы соглашаетесь https://fxdu.ru/foreks-klub-baku-otzyvy/ с использованием нами куки-файлов. Все это помогает погрузиться в тему инвестирования любому независимо от уровня подготовки, возможностей по времени, ресурсов и так далее. Объем наших услуг позволит подобрать для каждого оптимальный способ взаимодействия.
Методика построения
В данном случае о смене нисходящей тенденции на восходящую нам будет сигнализировать пересечение скользящих средних, когда “быстрая” скользящая средняя пересекает “медленную” снизу вверх. Недостатком данного сигнала, который подает скользящая средняя, является то, что большинство таких сигналов – ложные. То есть пересечение происходит, но тенденция продолжается очень короткий промежуток времени и вскоре происходит обратное пересечение.
Moving Average (MA) VS Exponential Moving Average (EMA)
For those of you who have just been in the world of investing or trading, you must learn about basic things such as trends, candlestick patterns, chart patterns, support and resistance, and indicators.
It is not uncommon for a beginner who is still new to the world of trading to find the most “profitable” indicator for him to use when trading.
But there is no such indicator because what you get is according to your knowledge. You also have to combine various price action analyses instead of relying on indicators alone.
There are still some basic indicators that a beginner must know at the beginning of his trading journey because these indicators are primary indicators that even professional traders use.
The indicator is a moving average; this indicator is a primary indicator widely used by many traders, from beginner to professional traders.
Before you know what exponential moving averages are, you should first know the basics of moving averages.
Moving averages can be a powerful indicator if you can use them properly.
That’s because the MA is the simplest indicator among other technical indicators.
If the price moves up (uptrend), then the MA curve will move up as well, and otherwise, if the price goes down (downtrend), the MA curve will move downwards.
The moving average is a statistical indicator based on the price action of an instrument where the purpose of the moving average is to find out the price movement in a certain period and to know the support and resistance limits of an asset.
This indicator also helps clarify prices by eliminating price fluctuations that may be less relevant, all based on past price calculations.
This indicator results in forming an average price line for a certain period.
You can adjust your time-frame selection according to your trading plan, for example, 5 (1 week), 60 (3 months), and 120 (6 months) periods. The longer the period you use in trading, the slower the movement compared to the price.
And one thing you also need to know is that the use of this indicator is not to find out price movements that will occur in the future.
However, this indicator is only used to find out the current trend.
Moving Average vs Exponential Moving Average:
- You will learn the basic differences between moving averages and Exponential Moving Averages
- Learn how to apply moving averages in trading strategies
- Discover the advantages and disadvantages of using Moving averages and EMA
- Find out which indicator is best for you between MA vs EMA
The Difference Between Moving Averages
Two moving averages are most used by traders worldwide, both of which have their definitions if interpreted.
Simple Moving Average (SMA)
We will refer to this moving average if we mention moving averages. Yes, that is a simple moving average.
The simple moving average is an MA that uses the same calculation weight for each day in its application.
So, if you use MA 5, then the weight of the five-day calculation is the same. It means that the previous day and today have the same calculation weight in predicting price movements.
SMA uses historical data on highs, lows, open prices, and closing prices. This indicator is an indicator that traders usually use to determine when is the best time to open or close the position.
Besides that, you can get a lot of other data from simple SMA calculations, for example, support and resistance points, sell and buy, etc.
This SMA indicator is the default setting of the moving average.
Therefore, as mentioned above, if it is related to the MA, it will directly point to the SMA.
Exponential Moving Average (EMA)
The Exponential Moving indicator, or what we know as the EMA, is the second most popular indicator after SMA.
Now, unlike SMA, if one candlestick experiences a price spike, then the overall value of the SMA will rise and result in us getting less accurate signals.
However, using the EMA will get a more accurate signal because the EMA focuses more on the average price movement.
The EMA is more sensitive to recent momentum than the SMA.
This is all done to assist investors in responding to price changes that are happening more quickly so that you as a trader can be faster in making decisions.
This indicator also helps you as a trader to determine buying points.
And just like SMA, by using EMA, you can find support and resistance.
Then, if you look at the graph, what is the difference between the ordinary moving average and the exponential moving average?
Please take a look at the bitcoin stock chart below:
The EMA (yellow line) looks closer to the original price movement, and SMA (blue line) looks further away from the price movement.
So this is an implication that the EMA is focused on more recent or current moves.
Functions Of Moving Average And Exponential Moving Average
MA and EMA have the same function in their application in trading on various existing instruments, while these functions are:
Clarifying Or Smoothing Out Price Movements
Becoming an indicator that smoothes price movements, it is clear that the function of the MA or EMA is to detect the direction of the trend. theory is:
- If the moving average line tends to rise and is below the price movement, the trend is bullish.
- If the line from the moving average tends to fall and is below the price movement, then the trend is bearish.
- If the moving average line forms a simultaneous hill and valley pattern, the trend is experiencing a sideways consolidation.
Knowing The Trend Reversal
So you can find out the trend reversal point. You need to see if the asset’s price has broken through the moving average.
If it is successfully penetrated in the short-term MA period, the reversal may only occur in the short term.
And vice versa, if the long-term MA period is broken, the trend reversal is likely to occur in the long term.
Determine The Support And Resistance Levels Of An Asset Price
You can also use moving average indicators to reference psychological levels rather than support and resistance.
When the price approaches the moving average level, the price often bounces so that the moving average is like a wall of price.
How To Practically Use MA And EMA In Your Trading
Thus becoming the most popular indicator among traders in the world.
Like the function mentioned above, the way to use Moving average and Exponential moving average is the same.
There are several ways to use indicator moving averages, and here are the steps for using moving averages:
Plot Your Charts At 20 And 50 MA Or EMA
The first step you have to do is set the chart precisely with the correct moving average.
You can use the setting of two moving averages with periods of 20 and 50.
Only then can you wait for the price to move to the next stage, namely the crossover.
Wait For The Moving Average Crossover
If you have set the 20 and 50 MAs on the chart, you must wait for the asset price to go above the 20 and 50 MAs.
After that, you need to wait patiently for the MA crossovers, which will increase the weight that will be bullish.
It would be best to refer to the crossover to buy the asset you are eyeing. When the 20 MA crosses above the 50 MA limit, you can make a buying decision.
If the 20 MA crosses down and the 50 MA, you can make a selling decision.
But keep in mind that because it is prone to false breakouts, you can collect more evidence before opening a buy or selling a market position.
Because at this stage of the cross, the trader may not know whether the sentiment is strong enough to push the price up.
Place Stop Loss Below 50 MA
It is very important because you can see the trend going up after a crossover and repeated retests.
Usually, the price will cut the MA, correct the MA, and then bounce back to test the bullish strength.
So that you avoid significant losses and don’t want to miss the current opportunities, because the market often does false breakouts, don’t forget to set a stop loss.
Do A Trailing Stop To Maintain Profit
So that the profit you get is maximum and can continue to run, you can do a trailing stop.
Trailing stop is a method by increasing the stop loss above the price of your current position.
If the price has increased after the crossover, you will not miss the opportunity.
However, if the price does a false breakout, you have limited your losses.
Advantages And Disadvantages Of MA And EMA
Advantages Of MA
- Moving averages are suitable for estimating trading assets or commodities where demand data is stable (constant) or do not show fluctuations.
- The moving average method is easy to understand and use in forecasting (forecasting calculation) compared with forecasting using trendline analysis.
- The forecast results from the moving average are very stable.
- You will find it easier to avoid fake signals in the market, and this is because the movement of the moving average itself is very smooth.
Advantages Of EMA
- All the advantages are almost the same as the regular MA. Still, the difference is that the EMA is more sensitive to price movements because the EMA gives a heavier calculation weight in the last period.
- Suitable for use by aggressive traders who want to get profits faster.
Disadvantages Of MA
- MA is less accurate to reflect recent trend information.
- MA requires a lot of information in the past. So for its application, it is also used for trading for long periods such as weekly or monthly.
- This indicator is very slow in responding to changes in information that often occur in the market.
Disadvantages Of EMA
- EMA is very sensitive to price movements. Therefore the potential for fake signals in the market is very possible.
Conclusion Of Who Is The Best Between MA Vs EMA
Moving average is a technical indicator that calculates the price range or closing price, then divided by the number of periods.
Traders often use MA to show price trends in a certain period.
If the MA is pointing up, this is a sign that the price is rising.
And vice versa, if the MA is pointing downwards, then this is a sign that the price trend is declining.
The EMA has the same function as the MA, but the EMA is more sensitive to price movements than the MA.
So the answer to which is the best of the two is up to you. If you want an indicator that reacts more quickly to price movements, for example, at the beginning of a trend, the EMA is the right choice for you to use.
The drawback of EMA is that the signals given are sometimes less accurate when prices are consolidating, aka sideways.
As mentioned above, this indicator reacts quickly to price changes.
You may think that there is a signal that is formed when in fact, it is only a price spike that occurs.
But if you need an indicator to read the current trend’s direction, then the MA with a long period is the right choice.
Although MA is arguably slow in reacting to price changes, you can avoid price spikes by which you may be able to avoid false signals.
The disadvantage of MA may be that you can miss important moments when a strong trend is forming, which can provide many advantages if you enter early.
And you need to know some traders use MA and EMA together.
This is useful for getting a broader picture of what is happening in the market.
MA with a long period is used to read the direction of the price trend, and then the EMA is used to find the right time to enter the market.