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A trader has to have a strategy. It is beneficial to create your own one because it may be built in a way that suits your needs perfectly. Nevertheless, it may be quite a challenge for beginners and that is why there are plenty of ready strategies waiting for you. Some are simpler, others more complicated, you should choose what works well for you. In today's article, you will get to know a rather straightforward EMA based strategy that has a pretty high win rate. Let's see what it is all about.
Key Takeaways🔑
| →The EMA based strategy is a simple yet effective way of trading in the financial market. |
| →To use the EMA strategy, you need to add two Exponential Moving Averages to the chart with different periods of 20 and 50. |
| →A trading signal is received when the EMAs cross each other, and then the price pulls back to the EMA20. |
| →Practice trading with the EMAs strategy on a demo account before investing real money. |
Creating a well defined EMA strategy
The first step is to log into your IQ Option account and choose the financial instrument for the session. Specify how big an investment you can make and think well through risk management. Then, choose the chart type and the 1-hour timeframe.
In order to use today's strategy, you will have to add two Exponential Moving Averages to the chart. Go to the indicators icon and find the EMA. Change its period to 50. Next, add the second EMA and set its period at 20. You have also an option to change the colour of the indicators so that it will be easier for you to distinguish them on the chart.
The rules of the EMA simple strategy
You have two EMAs with different periods attached to your chart price. You will now wait for the signal which will be generated when certain circumstances take place.
First, the EMA20 should cross with the EMA50.
Secondly, the price should pull back to the EMA20 after the EMAs crossover.
Signals to go long
When you want to open a position for the price increase, you should wait for the EMA20 to cross above the EMA50. Observe the price bars and note when they are coming closer to the EMA20's line. When the candle hits the indicator, you should enter the trade.
You may set a target at the level of the prior high, and a stop loss at an equal distance which provides a 1:1 risk-reward ratio. However, you can play with different settings and see how it turns out.
Signals to go short
If you wish to enter a position for the price decrease, you should wait for the EMA20 to cross the EMA50 on its way down and move further below. Then observe the price bars and see when they near the EMA20. The moment a candle touches the indicator's line, you may open your transaction.
Your take profit may be placed at the level of the last low, and a stop loss keeping the 1:1 Reward to Risk ratio.
Pros and Cons of Using the EMA Based Strategy 🔍
Advantages:
- Easy to understand and implement
- Can be used in different market conditions
- Provides a clear entry and exit signal
Disadvantages:
- May not work well in highly volatile markets
- Requires continuous monitoring of the market
- Not suitable for long-term investments
Comparison Table
| EMA Strategy | Other Trading Strategies |
|---|---|
| Easy to understand and implement | May require advanced knowledge and skills |
| Provides clear entry and exit signals | May require more complex analysis |
| Can be used in different market conditions | May not work well in certain market conditions |
| Suitable for short-term investments | Suitable for both short-term and long-term investments |
Summary
Some strategies are simple nonetheless effective. The EMA based strategy is one of them. It can be employed by all traders, from those who begin trading to more experienced ones.
What you have to do is to add two Exponential Moving Averages to the chart. They should have different periods, 20 and 50. A trading signal is received when the EMAs cross each other and then the price pulls back to the EMA20.
Remember that IQ Option offers a demo account free of charge for the platform users. Practice trading with the EMAs strategy there and notice how you perform.
Best of luck!
Q&A
- What is the EMA based strategy?
- The EMA based strategy is a simple yet effective way of trading in the financial market. It involves using two Exponential Moving Averages with different periods of 20 and 50 to identify entry and exit signals.
- Is the EMA strategy suitable for long-term investments?
- No, the EMA strategy is more suitable for short-term investments as it focuses on identifying short-term trends and making quick trades.
- What are the advantages of using the EMA strategy?
- The advantages of using the EMA strategy include its ease of understanding and implementation, ability to be used in different market conditions, and clear entry and exit signals.
- What are the disadvantages of using the EMA strategy?
- The disadvantages of using the EMA strategy include its potential limitations in highly volatile markets, the need for continuous market monitoring, and its unsuitability for long-term investments.
- How can I practice trading with the EMA strategy?
- You can practice trading with the EMA strategy on a demo account provided by your trading platform before investing real money.