A moving average is one of the most popular technical indicators. It is simple, yet efficient, and can be combined with other tools. It can provide confirmation for trading signals received from different indicators. Moreover, it can be used together with another moving average with a different period and so they constitute a trading technique. Today, I am going to tell you how to use a combination of two moving averages in your trading.
Key Takeaways🔑
| →A combination of two Exponential Moving Averages (EMAs) can be an effective trading strategy. |
| →EMAs help identify trends and provide entry signals for long and short positions. |
| →Practice the strategy on a demo account before implementing it in real money trading. |
Contents
Two moving averages in one strategy
A moving average is an indicator in which calculations are based on the average price of the underlying asset. There are different types of moving averages. In today’s strategy, we will use two Exponential Moving Averages.
Chart preparations
First, you have to log in to your Olymp Trade account. Choose the asset and the type of the chart. Next, click on the indicators icon and find Exponential Moving Average. You have to add it twice.
For the needs of this particular strategy, you will have to adjust the period of the EMA’s. One should be set at 100 and the other at 14. Additionally, you can change the colour and the width of the lines of the indicators if this is something that will help you to read the chart better.
Trading with two EMAs
You have two EMAs added to the chart. Now, you have to observe them and wait for certain conditions to occur.
Opening long positions
An opportunity to enter a long trade appears in the following situations:
- When the EMA14 and the price bars are plotted over the EMA with a period of 100.
- When the price bounces to the EMA14 and crosses below it for a moment.
- When the first green candle develops after the price has bounced back to the EMA14 and this bullish candle closes just below or above the EMA14.
The chart above shows two of these situations on the AUDUSD 5-minute chart. These are good places to open a long position. If you trade on Fixed Time Trades, open positions for 3-5 consecutive candles.
Opening short positions
Search for the following events if you want to enter a short trade:
- Both, the EMA14 and the price bars cross below the EMA100 and stay there.
- The price bounces to the EMA14 and crosses above it.
- The first red candle appears after the price has bounced to the EMA14.
In the AUDUSD chart above, note how price beautifully collapsed on the EMA14 to later continue its downward movement.
Pros and Cons of Using Two Moving Averages 📈📉
Pros:
- Helps identify trends and confirm trading signals
- Can be used with different assets and timeframes
- Provides clear entry points for long and short positions
Cons:
- Requires monitoring and patience to wait for valid signals
- May generate false signals during choppy or sideways markets
- Should be combined with other indicators or analysis for enhanced accuracy
| Trading with Two Moving Averages | Tips for Success |
|---|---|
| Use two Exponential Moving Averages (EMAs) with different periods | Set the EMA periods based on the timeframes you trade |
| Look for the EMA14 and price bars to cross the EMA100 for long positions | Wait for a bullish candle to close near or above the EMA14 for confirmation |
| Monitor the EMA14 and price bars crossing below the EMA100 for short positions | Wait for a bearish candle to appear after the bounce to the EMA14 |
| Practice the strategy on a demo account before trading with real money | Combine the strategy with proper risk management techniques |
Summary
Trading using moving averages is very common. Different traders use different averages in different ways depending on their trading style. Today’s method assumes that there is a trend determined by the EMA100. The position entries themselves are cleverly structured here to catch temporary corrections. With a correction identified you wait for the EMA14 to confirm the continuation of the trend. This method is not complicated but requires training. You can practice it on a demo account available at Olymp Trade. Practice and test the strategy on different instruments and timeframes. If your results are satisfactory, then nothing is stopping you from implementing this strategy in real money trading.
Good luck!
Frequently Asked Questions about Two Moving Averages Strategy 🧐
- Q: What are the advantages of using two Exponential Moving Averages?
- A: Two EMAs help identify trends and provide entry signals for trading.
- Q: Are there any drawbacks to using this strategy?
- A: False signals may occur in choppy or sideways markets, and it requires patience to wait for valid signals.
- Q: How can I determine the periods for the EMAs?
- A: Adjust the EMA periods based on the timeframes you trade and the asset’s characteristics.
- Q: What confirmation signals should I look for in long positions?
- A: Wait for the EMA14 and price bars to cross the EMA100, and for a bullish candle to close near or above the EMA14.
- Q: Is practicing on a demo account necessary?
- A: Yes, practicing the strategy on a demo account helps familiarize yourself with its implementation and refine your skills before trading with real money.