Introduction
In the quick-changing world of money and investments, traders constantly seek effective strategies to navigate the ups and downs of price movements. One such strategy gaining popularity is the combination of Exponential Moving Average (EMA) and Moving Average Convergence Divergence (MACD). In this blog post, we will delve into the details of this powerful strategy, outlining steps to implement it successfully.
Setting the Stage
Imagine the trading chart as your battleground, where the EMAs and MACD act as your loyal generals. Our initial step involves deploying a 14-period EMA to identify trends and potential entry points. Think of this EMA as a sturdy bridge guiding you across the price movements.
Detailed Video
Trade Execution
The key trigger for initiating a trade using this strategy occurs when two conditions are met simultaneously:
1.When price crosses above the 14 EMA and the MACD line to cross above the signal line, then take buy entry and place the stop loss at the low of the candle preceding the entry candle.
2.when price to cross below the 14 EMA and the MACD line to cross below the signal line, then take sell entry and place the stop loss at the high of the candle preceding the entry candle.
Victory Awaits
With both conditions met, it's time to charge into the market. Take a buy entry and position your stop-loss at the low of the candle preceding the entry candle. These well judged measures act as a shield, safeguarding you from unexpected market reversals.
Turning the Tide
But what if the market whispers bearish tales. Fear not, for the strategy adapts. When the price falls below the 14 EMA and the MACD line dips below the signal line, a bearish scenario unfolds. Just like a swift pivot on the battlefield, take a sell entry and place your stop-loss at the high of the candle preceding the entry candle. Remember, even in retreat, calculated operations minimise potential losses.
Risk Management
To safeguard against potential losses, it's crucial to implement effective risk management measures. In this strategy, placing a Stop Loss (SL) at the low of the previous entry candle serves as a prudent approach. This ensures that if the trade moves against expectations, losses are limited to a predefined level.
Targeting Profit
Setting a realistic profit target is an integral part of any trading strategy. With this MACD and EMA strategy, traders aim for a Risk-Reward Ratio (RRR) of 1:2 or 1:3. This implies that for every unit of risk (as defined by the Stop Loss), the trader seeks a reward of two or three units. This approach helps in maximising gains relative to the risk undertaken.
Conclusion
Incorporating the MACD and EMA strategy into your trading arsenal can offer a systematic approach to identifying favourable entry points and managing risks effectively. By aligning technical indicators like the EMA and MACD, traders enhance their ability to make informed decisions in the ever-changing landscape of financial markets.
As with any trading strategy, it's essential to conduct thorough backtesting, adapt to market conditions, and stay disciplined in executing trades. While there are no guarantees in trading, a well-defined strategy can significantly improve the odds of success. Embrace the power of the MACD and EMA strategy, and may your trades be filled with prosperity and success.
Disclaimer:
Please note that this blog is not any recommendation for buying or selling any stock. We always encourage the reader to do their research before investing in any stock.
FAQs
Trading rules for the MACD + EMA strategy. We open a long position (buy) only when the 15-minute EMA is above the hourly EMA, and we open a short position (sell) only when the 15-minute EMA is below the hourly EMA. In our example: blue line under the orange line = short trades only (sale);
What is the strategy of 20 EMA and MACD? ›
Strategy Principle
Buy signal: When the price is below the 20EMA and the MACD indicator line is below the 0 axis, wait for the price to break upwards across the 20EMA, while checking if the MACD indicator line has turned from negative to positive at the same time or has just turned from negative to positive.
What is the best indicator to combine with MACD? ›
Some popular combinations are the MACD with the MFI or TRIX, but the most popular combination is MACD with Bollinger Bands. All of this is to say that the settings for the MACD are important, but there are other considerations that will be of greater help when creating a successful day trading strategy.
How to use MACD and 200 ema? ›
Using MACD and EMA 200 in Share Trading
— When the MACD line crosses above the signal line (a bullish crossover) and the MACD line is below 0, it indicates a potential buy signal. — Additionally, if the EMA 200 is on an uptrend (sloping upwards), it strengthens the buy signal, suggesting a bullish market trend.
What is the 1 2 3 trading system? ›
The 123-chart pattern is a three-wave formation, where every move reaches a pivot point. This is where the name of the pattern comes from, the 1-2-3 pivot points. 123 pattern works in both directions. In the first case, a bullish trend turns into a bearish one.
What is the triple MACD strategy? ›
The MACD Triple Crossover Strategy
The MACD Triple Cross Strategy involves using three exponential moving averages (EMAs) to identify potential trading opportunities. It combines the Moving Average Convergence Divergence (MACD) indicator with two additional EMAs.
What is the best time frame for MACD strategy? ›
For daily charts, many traders find the default MACD settings (12, 26, 9) to be very effective. This timeframe captures the broader market trends and helps filter out market noise. Combine MACD with other indicators like RSI or Bollinger Bands when analyzing a 1-day chart for a more comprehensive market view.
What is the best EMA combination for day trading? ›
The 5-8-13 Exponential Moving Average (EMA) combination is a favored tool among day traders, providing a responsive and precise insight into fast moving markets. By applying this EMA trio effectively along with other indicators, you can significantly refine your entry and exit points.
What is the MACD formula for EMA? ›
MACD Formula
MACD is calculated by subtracting the long-term EMA (26 periods) from the short-term EMA (12 periods). An EMA is a moving average (MA) that places a greater weight and significance on the most recent data points.
What is the MACD secret strategy? ›
This is often seen as the slowest signal of the three, so you will typically see fewer signals, but also fewer false reversals. The strategy is to buy – or close a short position – when the MACD crosses above the zero line, and sell – or close a long position – when the MACD crosses below the zero line.
The standard MACD settings (12, 26, 9) are time-tested and widely used, offering a good balance for various market conditions. They tend to be reliable for capturing broader market trends.
What is the MACD combo strategy? ›
The MACD combo strategy involves using two sets of moving averages (MA) for the setup: 50 simple moving average (SMA)—the signal line that triggers the trades. 100 SMA—gives a clear trend signal.
What are the best settings for MACD crossover? ›
Divergences between price chart and MACD can be more accurate. The position of the chart relative to the zero line and the crossing of moving averages over the zero mark can indicate trend strength. Best Settings: For H1 timeframes, optimal values are 12, 26, 9.
What is the 30 minute EMA strategy? ›
Developed using a 30-minute timeframe, this strategy, backtested over 5,000 candles, is designed for long positions on TSLA. It triggers a buy signal when the 13-period EMA crosses above the 26-period EMA, and a sell signal on the reverse crossover.
Which indicator works best with EMA? ›
EMA may be combined with other indicators, such as RSI, MACD, or other moving averages, to enhance decision-making processes, confirm trend direction, and identify overbought or oversold conditions.
How do you use MACD with moving average? ›
MACD Formula
MACD is calculated by subtracting the long-term EMA (26 periods) from the short-term EMA (12 periods). An EMA is a moving average (MA) that places a greater weight and significance on the most recent data points. The exponential moving average is an exponentially weighted moving average.
What is the 8 13 21 EMA strategy? ›
The 8, 13, 21 EMA strategy involves using three exponential moving averages (EMAs) set at periods of 8, 13, and 21. This strategy helps traders identify trends and potential entry and exit points in intraday trading based on the crossover and positioning of these EMAs.
