The trading guide for using the Exponential Moving Average (EMA) on the Olymp Trade platform
The moving average is created by calculating an average of closing prices from a given number of candles. There are a few methods of calculating an average. The Simple Moving Average is just a sum of closing prices divided by several given candles. The Exponential Moving Average, on the other hand, is more sophisticated. It also uses a given number of candles (it is EMA period) but the mathematic equation for its calculation is quite different. Well, I do not want to bother you with the formula of calculations. What is important is the fact that the EMA reacts faster to the current market movements. You can observe this by setting up both, the SMA and the EMA with the same period on your chart. Just to compare the two of them.
Setting up the EMA indicator at Olymp Trade
Once you are logged in, you choose the asset and set the Japanese candlesticks chart. Then find the indicators feature and click on it. You will see the EMA between “Trend indicators”. Select it and it will be added to your chart.
You can easily change the indicator’s parameters by clicking on the pen icon. Change the period for a higher than 10, to get a more accurate line. You can also modify the color and the width of the indicator.
When you want to use two EMAs on one chart, you simply repeat the procedure presented above. Remember to change the color of the second EMA so it will be easy to distinguish them.
Using the EMA14 and the EMA28 in trading at Olymp Trade
Trading with two EMAs is to observe the space between the lines and the points of intersection.
Look at the chart above. The EMA14 is moving below the EMA28 and the gap between them widens. Also, the prices are under both indicators. This means a strong downtrend and a signal to open a sell trade. As the space between the lines shrinks, the trend is close to exhaustion.
In the opposite case, when the EMA14 crosses and starts to move above the EMA28, the gap widens and the indicators stay below the prices, we have a strong uptrend. You ought to open a buy position.
You can notice in the example above, that there are times when the indicators run close to each other and stay on the price level. This happens when the market is ranging and it is best to lay low for a time until the trend begins to grow.
Pros and Cons of Using EMA on Olymp Trade 💼
- Reacts faster to market changes, providing timely data for decision making.
- Can be used in conjunction with other indicators to identify market trends and reversals.
- Useful for both short-term and long-term trading strategies.
- May generate false signals during a ranging market, leading to potential losses.
- Requires careful analysis and interpretation to avoid misleading signals.
|EMA14 and EMA28||Identifying strong trends and their exhaustion by observing the gap between the lines.|
|EMA30||Recognizing trend reversals by observing the EMA crossing the price candles.|
Using the EMA30 in trading at Olymp Trade
The EMA with a period of 30 is also widely used in trading. With its help, you can identify the upcoming trend. Look at the exemplary chart above.
Of course, the most important thing is when to enter the trade. Well, when you see the EMA30 is nearing the prices from the above, and finally, it cuts the candle, you get your point. Here it was a bullish candle and the EMA began to move under the prices so your position should be a long one.
Check out the next chart.
We have the opposite situation here. The EMA30 was moving below the prices, which means that it was the uptrend, but it came to the exhaustion and the indicator cut the bullish candle. Then it runs over the prices. Now is the right moment to place a sell order.
It is really very simple, yet efficient to trade with the EMA. You can identify the trend just by observing the relation of the indicator’s line to the price level. Moreover, when the EMA crosses the candles you will know, the trend reversal is occurring.
I just want to remind you it is a good idea to use the EMA with a period higher than 10. This will strengthen its accuracy and make it useful for long timeframe trading.
Thank you for staying with me to the end. I am aware of the fact, that practice is the best teacher, so go to your Olymp Trade demo account and set the EMA indicators. Try both approaches and decide which one works better for you. I would be glad to hear from you. Write your thoughts in the comments section below.
Frequently Asked Questions 🙋♀️
- Q: What does it mean when the EMA14 crosses and starts to move above the EMA28?
- A: This usually indicates a strong uptrend, suggesting a good time to open a buy position.
- Q: How can I identify a strong downtrend using EMA14 and EMA28?
- A: If the EMA14 is moving below the EMA28 and the gap between them widens while the prices are under both indicators, this indicates a strong downtrend. It could be a good time to open a sell trade.
- Q: Why might the EMA generate false signals?
- A: During a ranging market, when prices fluctuate within a specific range without clear direction, the EMA might generate false signals. This is because its sensitivity to price changes can result in rapid shifts that don’t necessarily reflect a true change in trend.
- Q: How does the EMA30 help in identifying the trend?
- A: When the EMA30 nears the prices from above or below, and finally cuts through a candle, it indicates a possible trend reversal. This can help traders decide when to enter a trade.
- Q: What EMA period should I use for long timeframe trading?
- A: It’s generally suggested to use an EMA with a period higher than 10 for long timeframe trading to increase its accuracy and effectiveness.
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