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brownsfan019

20 EMA & Patterns on FOREX

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There's some good ideas in the thread and it's up to the end user to implement them to work for their trading style.

 

I have not taken the plunge into FX, so can't speak on behalf of long-term profitability of the ideas presented here.

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This is a great discussion on EMA's and they are my favorite. I run 2 sets of ema's on 1 and 5 min charts of the Dow and S&P. They are 8,21,34 and a 15,50,89. The oscillation between these ema's on the 1 and 5 min charts provides for numerous entries and exits and continuation patterns.

I liked how one of you refered to a 'repetoire' of trades, I watch a broad range of data from tick and trin to stochastics and the ema's. Often more for confirmation of entry direction and continuation and to set my limits and stops.

Actually I find the slow stochastic running on the bottom of my 1 and 5 min charts can give you a real good idea of the strength and duration of a move. For example as the 5 min moves from overbought to oversold the 1 min will complete 2 or even 3 moves from overbought to oversold. To me it kind of represents the 'energy' left in a move or on a longer term basis the energy flow during the day. The reason why I use such short time frames is that during the day these two time frames, 1 and 5 min slow stochastics for the most part oscillate from overbought to oversold completely all day long. The 10 min for example often stops and retraces without completing the journey. But again the 1 and 5 min oscillate pretty much all day long.

Here is an example of one of my trades. it starts with a strong crossover signal on my ema's say it's long, then the stochastics, if the 5min is currently in oversold rng and the 1min is still in overbought, I will wait for the 1 min to return to oversold before I enter the trade. Then I know that there is quite a bit of travel left in the next stochastic travel back to overbought. Now once in a trade I will watch the 5 min stochastic to spend all of it's energy up to oversold before the move is over.

Well of course I am also looking at pivots and round numbers and trin and, and, and... but that is how I gage my ema's signals..... with stochastics... and volume did I mention volume.... lol lol lol

 

But in the end I guess it all depends on what kind of trade you want to take, how much you need to make on each trade, how much you expect to make in a day.... and so on. I'm only looking to make YM 50 pts in 3 to 5 trades per day.... consistently and that's only 10 to 15 pts per trade with 1 contract... So you can see I only need relatively small moves to reach my goals and that is why I use such short time frames. on my sim everyday no problem... with real money.... big problem.... lol lol lol. So I guess that means it's not my method... it's my madness... lol lol

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Thanks daedalus.

 

Here's one which wasn't very successful albeit on a 5 min chart. The inverted hammer formed on the 20EMA and it also looked like a H&S was developing. Perhaps, my mistake was shorting it too close to the support level although eventually, the price did turn south. attachment.php?attachmentid=8709&stc=1&d=1228293394

 

Just my opinion but I probably would not have shorted this bar unless for a very quick scalp, for a couple of reasons:

 

1) From the given chart, the market is trending within a defined range, hence your defined S&R box region; bottom level has been established as a support area.

2) There is a fairly small range between the swing high and its nearest swing low (1.4871-1.4860).

3) Prior couple of bars show a breach of this support level, however I would consider this a bullish rejection of the breakout. In the short term this could've appeared a retracement following breakout,however ideally price should've pullbacked to the old support level now acting as resistance. At best, a conservative entry would've waited for break of prior swing low or the pin bar occurring with the wick at prior support, now resistance.

4) Mostly importantly for me most people will only qualify a pin bar as useful if it appears itself with the upper wick in a prior area identified to be support or resistance. There is one bear bar earlier one with a longish wick which could've suggested resistance but I wouldn't consider it strong enough.

 

Just a side note, you could've drawn a trendline from the two swing lows of left shoulder and head then copied this trendline from the head to the right shoulder. I did it by eye so I maybe wrong, but this would've given an almost perfect entry with acceptable distances between high and swing low (assuming the breakout didn't work)

 

Will

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I didn't notice this mentioned earlier in the thread, one of my favourite things about the 21EMA is that it's pretty easy to spot overbought or oversold areas(easier than RSI for example) without the need for an additional indicator. One can easily spot these areas, as well as what would be double tops on the RSI, and to an extent divergence over time. It might not give you a market top but it'll definitely give you a nice swing down.

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While I have noticed a few of you have tossed around the term "high probability set up" but has anyone actually looked at the EV of this approach? Without systematically forward testing it and better defining the rules, most of your thoughts and opinions are sheer speculation

 

What is the win loss rate? Avg win? Avg loss? - When does it win? When does it lose? - This is the important stuff

 

I've been testing a similar system that uses an 21SMA (not ema); it doesn't make much difference. Perfect bouncing is a coincidental rarity for either. I've been using an indicator developed for metatrader to give an arrow alert as soon as 1 (2 min bar) exceeds the wick of another 2 min bar in the opposite direction. Not my own, but developed from someone on FF.

 

I've noticed that waiting for a "bounce" off the 21 in trending conditions does give a higher probability trade on certain conditions. But personally the time and effort involved in monitoring such low time-frames is very labour intensive for what is often a pretty rare signal indeed. And totally dependent on a trend which may never occur. I don't believe its tradeable as a standalone system but something that can be added to the traders repertoire should the oppotunity present itself.

 

The danger I've found in the backtesting/forward testing that I have done, is that the winners with hindsight are so easy to spot it gives a false sense of success rate. Everybody can see that lovely trend bouncing off that 20/21 MA a mile off. But there are plenty of hidden losers. On closer inspection I personally have found it very difficult to guage a correct stoploss for such bounce trades on entry. Such bounce trades can often come after a consolidating ranging period oscillating around a particular MA such as the 21 or 200 MA. But can often continue to range after entry. I've found it dangerous to assume that just because it has seemingly just 'respected' the MA that it will continue to do so; it often does not. This is demonstrated in some of the failed trades shown by learningtotrade. Taking that in mind, I like to see that price has previously shown a tendency to take the MA as support/resistance before the signal I intend to take. That is, a consistent retracement to the MA that is easily indentifible.

 

These events maybe too rare occasions for sufficient trading oppotunities though. In my opinion this is tantamount to restricting your trading to the coincidental times that price retraces to an MA which at the end of the day is a lagging indicator. I hope someone proves me wrong and finds something sufficiently profitable in this and has the patience for it!

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This system will work in the hands of an experienced trader. During my travels in the trading world I've come across a plethora of systems and I can honestly the K.I.S.S system is defo the way to go.

 

I came across a chart of a multi million dollar trader. I know this thread is on the forex but his chart was a 30min candlestick chart of the S&P 500 futures. All he had on the chart was a 34 EMA.

 

His sytem was simple, only take long trades if price is above the 34 EMA and only go short when price is below the 34 EMA. The highest probability long trades are when price penetrates above the 34 EMA and pulls back to test the 34 EMA for the first time. At that point he would use simple candlestick patterns to get him into the trade. Obviously reverse for shorts.

 

There is a little more to his trading but that's 90% of his sytem. He makes over $10 million dollars every year just doing this.

 

This proves that you don't have to be a super intellectual to trade or have some sort of highly complex mathamatical system. All you need is balls, discipline and the right attitude everyday!

 

Cheers

LT

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I came across a chart of a multi million dollar trader. I know this thread is on the forex but his chart was a 30min candlestick chart of the S&P 500 futures. All he had on the chart was a 34 EMA.

 

His sytem was simple, only take long trades if price is above the 34 EMA and only go short when price is below the 34 EMA. The highest probability long trades are when price penetrates above the 34 EMA and pulls back to test the 34 EMA for the first time. At that point he would use simple candlestick patterns to get him into the trade. Obviously reverse for shorts.

 

I have a close friend who trades currencies only (spot and futures), and he too applies the 34 ema in a similar manner to his trading.

 

Best Wishes,

 

Thales

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I completed the chapter on the one tick failed breakouts earlier today. Just an observation from the first post in the thread. For the chart for USD/CHF 5min 09-28-08 where the short arrow is this is an almost perfect example from this chapter. Those that entered long on the strong bull candle, predicting a reversal, would've had a stop below its low, hence the increased momentum on failed breakout above the 20ema. It's pretty neat seeing these things which I wouldn't ordinarily have noticed before apart from the obvious rejection, just adding greater bearish sentiment. Random post but it's just nice to see my perspective changing everyday =)

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I completed the chapter on the one tick failed breakouts earlier today. Just an observation from the first post in the thread. For the chart for USD/CHF 5min 09-28-08 where the short arrow is this is an almost perfect example from this chapter. Those that entered long on the strong bull candle, predicting a reversal, would've had a stop below its low, hence the increased momentum on failed breakout above the 20ema. It's pretty neat seeing these things which I wouldn't ordinarily have noticed before apart from the obvious rejection, just adding greater bearish sentiment. Random post but it's just nice to see my perspective changing everyday =)

 

Which chapter from where are you referring to?

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Which chapter from where are you referring to?

 

Ohhh, sorry. Al brooks: Reading price charts bar by bar. Chapter 9 'Minor Reversals: Failures'. Page 222-225 (it's the first subtopic). Hope that helps.

 

Will

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one reason is 34 is a mystical fib number (21 + 13)

 

 

another reason is...

 

34 falls between the popular institutional 20 MA and 50 MA.

an "in-between" of these MAs captures the action of both.

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I was only demo trading today but I thought this was a good setup offering a number of entires, and scope for analysis.

 

Breakout from the short-term bull trend in a bull descending channel. Almost textbook breakout pullback with the bear high touching the base of ascending trend and kissing the 34EMA (light blue line). Price corrected/trading range, pullback to the 34EMA. After failure of trend reversal the bear action increased in momentum, as expressed by the kissing of the 21EMA. Price did not initially break the lower channel with the pullback near the edge. Given its proximity to the edge I considered this a valid entry after the kiss of the 21EMA, but more importantly because of prior action with rejection of bull trend line, the correction, lower high and resultant momentum. Maybe this was more aggressive, the point was just to demonstrate the 21/34ema. I use both because they give me a little better idea of the strength of momentum.

 

I don't have a reason (fib/institutional mid) for selecting these magic number, my reasoning is from reading forums and speaking to experienced traders, as well as reading books in which these numbers were frequently commented upon. I've tried out many moving averages but found the larger ones impractical with infrequent pullbacks, in practice the kisses of these dynamic areas of support and resistance seem like very nice visual gauges of momentum so my reasoning is more practice based than infallible logic.

5aa70f11d0494_ExAlGU101009.thumb.jpg.d6d21b4ac603b72597ad75eb00c14be3.jpg

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If you have the time observe the 21 EMA after a big move. For example after a violent market move after a news event the first retrace to the the 21 EMA often offers a perfect entry in the direction of the move. Very low risk (4ticks).

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another reason is...

 

34 falls between the popular institutional 20 MA and 50 MA.

an "in-between" of these MAs captures the action of both.

 

Yup! This is dead-on. I've used the 20/50 for years and now often simply use the 34 for this very reason.

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