- if the faster exponential moving average(5ema) crosses the slow ema (8ema) to the upside then its an indication of an uptrend.
- If 5ema crosses 8ema to the downside, its an indication of a downtrend.
- trade entries are taken after the ema cross-over
you need the 5 and & 8 exponential moving averages.
You can use this forex strategy for any currency pairs.
Wait for 5ema to cross 8ema to the upside. Buy at the close of the candlestick that closes after the ema’s have crossed. Place your stop loss 5-10 pips below the low of that candlestick.
When 5ema crosses 8ema to the downside, sell at the close of the candlestick. Place your stop loss 5-10 pips above the high of that candlestick.
TAKE PROFIT :
You can use a couple of options for take profit:
- your profit should be set at least 3 times the risk on that trade
- or you can aim to take profit at the previous swing low for a sell order and a previous swing high for a buy order
HOW TO MANAGE A PROFITABLE TRADE:
How would you manage a profitable trade placed with the 5ema and 8ema cross over forex trading strategy? Well, here’s a couple of options you can use:
- If trade moves in favor, and you want to lock in profits, the best option is to move stop loss and place behind the high(or low) of each subsequent candlesticks that forms. That means for a short trade, move stop loss and place above the high the candlestick that continues to make lower highs. For a long trade, move stop loss and below the low of each subsequent candlestick that continues to make Higher Lows.
- Or if on the daily timeframe, you may try to use a 50-80 pips trailing stop.
- If on the 4 hr timeframe, use 25-40 pips trailing stop.
ADVANTAGES OF 5EMA AND 8MA FOREX TRADING STRATEGY
- this is a simple easy to understand forex trading strategy where beginner forex traders will find easy to use
- in a strong trending market, you stand to make lots of profitable pips when you ride out the trend.
DISADVANTAGES OF 5EMA AND 8EMA FOREX TRADING STRATEGY
- the forex trading strategy performs poorly in trending markets
- if you trade larger timeframes like the 4hr and daily, your stop loss are going to be huge
- which means your risk are going to be huge so you have to trade small contracts to keep your risk within acceptable levels.
- exponential moving averages are lagging indicators and therefore every entry taken based on moving averages is effectively “late”. Which simply means that price had already made a big move and you would have not gotten into the trade at the start of that move
- Therefore by the time the forex trading strategy gives the signal to enter, the market may be due for a temporary reversal and can knock out your stop loss as well.
“I would not pre-pay. I would invest instead and let the investments cover it.” – Dave Ramsey
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