Exponential Moving Average - EMA

 

The 50 EMA is our indicator to determine the short term trend, and the 10 and 21 period EMA’s provide us with strong support and resistance levels which we will use for entry signals.

If you are going to trade futures I would personally look into options and in such a strangle trade.

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The 50 EMA is our indicator to determine the short term trend, and the 10 and 21 period EMA’s provide us with strong support and resistance levels which we will use for entry signals.

If you take a look around the web at what you can find about CL specifically, and futures trading in general, I think you'll find it takes very little time to appreciate that "it really can't quite be that easy", and - sure enough - there are reasons for that! This depends a lot on what your exit strategy is.

If you are looking at a method where you enter on one crossover and exit-and-reverse on the next crossover it will not work on any market in the long term. But even then there are often periods where such MAs are close together and cross back and forth, whipsawing away a lot of profit if one trades every cross.

You would need to define carefully which trading times are most likely to function best and maybe even look for some other indicator to help filter out some of these fake breaks. There are traders who favour this combination as an entry method and also look at the slope of the to confirm trending rather than ranging.

They also look at the same combination on multiple timeframes such that if, say, a 1H chart is currently upwards then a 15m upward crossover would be worth entering whereas a downward crossover might be short-lived. However, one general problem with MA combinations is that they perform quite well when trends start and have momentum, but give weak and false signals once the trend is weakening and the market goes into post-trend ranging - which is often only recognisable as such after it has been happening for some time and already given a series of quick whipsaws!

Also, if you are trading crude oil as a CFD through your broker, you may find that they are monthly expiration contracts, so you may not try a 'buy and hold' from the current low levels and just sit on those positions hoping for a move higher if that is your trading style It is not even a ranging commodity at present, more of a choppy, undervalued asset without conviction So you would be better off listening to Dr Lexy and avoiding crude oil like the plague Pairs like Kiwi-Cad offer good movement If you are going to trade futures I would personally look into options and in such a strangle trade.

So when you see a 50 and ema cross price will more than likely move quickly. Yes off load them fast if price dont move. It only works in a fast moving market with high liquidity. Typically though if a 50 and ema are close enough to make a cross over then regardless if the cross or not there should be enough traders in the market to make something happen.

Still have high risk but its probably will have a higher chance of profit than trading a cross itself in the futures or spot markets. I'm sure this is right. It wil be interesting to see whether the outcome of next month's OPEC meeting changes that. Thanks for all the replys. Yes, i have been looking into CL CFD but i will take more careful approach thanks to the all comments in here.

So if the MA's aren't reliable what is the best thing to turn to? Tharp - an outstanding starting-point. The Mathematics of Money Management: Why People Believe Weird Things Michael Shermer - this book and Taleb's, just above, are hugely helpful - albeit indirectly - for "understanding what's going on in forums"!

And last but not least: I have been forward testing the EMA 20 50 crossover for about 6 months. The reason appears to be it's lagging too far behind real price action. It basically misses the bus and runs behind. Although I will continue to use them, I will not use them as a entry trigger. And I am currently focusing on trendline analysis. As it uses real price action data, not lagging.

I have come to the conclusion that using any lagging indicator as a entry trigger is not all that reliable, but I have not tested each and every one, just the common 5 or 6 and they are helpful to understand directional bias, but in my opinion, not to be used for triggers and should only be used optionally as a confirmation.

Yes this is a blanket conclusion, but it's the same conclusion I have found in many of the books written from top traders. So, I will take their word for it, and in my mind confirmed their findings as they dont produce reliable consistant results as a stand alone holy grail entry trigger.

EMA crossover strategies only works in strong trending markets, which doesnt happen all that often. This is just my opinion, but I would suggest you have a look at price action strategies. Forex is far to volitile for EMA crossover strategies to be reiable in the long run. It all depends on how one constructs one's charts. The problem begins when one picks the indicators first and then starts to see how they work out.

The better approach is to look at a bare chart and from that decide what you would like an indicator or line or pattern or candle grouping, etc to tell you. From there one can painstakingly go through a process of selection and rejection until one finds the application that is answering one's needs. Exponentially weighted moving averages react more significantly to recent price changes than a simple moving average , which applies an equal weight to all observations in the period.

The and day exponential moving averages EMAs are often the most popularly quoted or analyzed short-term averages. The and day are used to create indicators like the moving average convergence divergence MACD and the percentage price oscillator PPO. In general, the and day EMAs are used as signals of long-term trends.

Traders who employ technical analysis find moving averages very useful and insightful when applied correctly but create havoc when used improperly or are misinterpreted. All the moving averages commonly used in technical analysis are, by their very nature, lagging indicators.

Consequently, the conclusions drawn from applying a moving average to a particular market chart should be to confirm a market move or to indicate its strength.

Very often, by the time a moving average indicator line has made a change to reflect a significant move in the market, the optimal point of market entry has already passed. An EMA does serve to alleviate this dilemma to some extent.

This is desirable when an EMA is used to derive a trading entry signal. Like all moving average indicators, they are much better suited for trending markets. When the market is in a strong and sustained uptrend, the EMA indicator line will also show an uptrend and vice-versa for a down trend.

A vigilant trader will not only pay attention to the direction of the EMA line but also the relation of the rate of change from one bar to the next. Because of the lagging effect, by this point, or even a few bars before, the price action should have already reversed. It, therefore, follows that observing a consistent diminishing in the rate of change of the EMA could itself be used as an indicator that could further counter the dilemma caused by the lagging effect of moving averages.

EMAs are commonly used in conjunction with other indicators to confirm significant market moves and to gauge their validity. For traders who trade intraday and fast-moving markets, the EMA is more applicable. Quite often traders use EMAs to determine a trading bias.