EMA forex strategy is one of the many strategies that can be used in trading the forex market. To actually understand what the EMA strategy is all about, let us first take a look at what EMA is.
WHAT IS EMA?
EMA is an acronym for Exponential Moving Average. A moving average is an indicator that is very common in technical analyses of the forex market. Its function is to smoothen out price action by filtering out noises from random price fluctuations. It can also be described as a trend following or lagging indicator seeing as its functionality is based on past prices. Generally, there are two types of moving averages, they are
- Simple moving average
- Exponential moving average
For the purpose of this article, out focus will be on exponential moving average
Exponential Moving Average is an exponentially weighted moving average. Basically, it is the similar with simple moving average, the only differences being the following
- More weight is given to the latest data in the case of EMA
- Compared to SMA, it reacts faster to recent price changes
Now that we have an idea of what the EMA is all about, let us get down to how to create a forex strategy with it.
EMA BASED FOREX STRATEGY:
You may already know that the EMA is the basis of any forex strategy. This can be seen in its popularity among traders for technical analysis. Question is; how is it so? It is so because it covers trading for a short term, as well as for the long run. So, the EMA forex strategies employ the tactics of trading with regards to the position of a short term EMA in relation to the long term EMA plan.
Forex trading is quite dynamic and there are lots of ups and downs all the time with price movements in just 24 hours. So, while the general long term picture of what is expected of the market is in place and view, why not take the advantage of the little ups and downs that you encounter on your way to the big deal.
In creating a trading strategy with the EMA, here are three simple tips to follow
- Find the trend
- Time the market entries
- Strategically exit positions
To do all that has been mentioned above as tips to creating the EMA forex strategy, you need to understand what a trend is, how to enter and exit a trade. The point is; there is more work to be done.
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