SMA: A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods.EMA: A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data.
The first step is to understand what is 315, its advatages and disadvantages.
See AlsoThe '$5 Threshold' Trading Strategy ExplainedHow To Use The Reward Risk Ratio Like A Professional -The second step is to understand some rules I have derived to use it effectively. Rules are related to effective entries, effective SL management, effective profit bookings, effective re-entries and in the end effective money management or effective safeguarding the capital.
In this post I would focus on step 1 i.e what is 315 etc.
315 Strategy for swing trading
315 is a simple swing technique which tries to identify a trend very early. In this strategy we use only EMAs name EMA 3 & EMA 15 (hence the name 315).
People ask me why EMA 3 and EMA 15 . For me last 3 days define the immediate average price. To find the slightly longer term trend i use the factor of 5. This is becuase 5 has an interesting relevance to markets. We have approximately 5 hours of trading everyday, 5 trading days in a week, almost 5 trading weeks in a month. So I simply multiple 3 by 5 to get my 15 EMA which defines my medium term average price.
Now in simple terms, if our immediate average price is higher than the medium term average price that means we are entering in a bull swing and visa versa. Hence the strategy entries are:
- Enter Long when 3 EMA goes above 15 EMA (When the "Green" line shoots over "Red" line in below chart)
- Enter Short when 3 EMA goes below 15 EMA (When the "Green" line dips below "Red" line in below chart)
Live Chart - The below chart is, live last 15 days chart and is valid whenever you are seeing it.
Advantages of following 315 strategy
Disadvantages of 315 Strategy
- A simple technique using just 2 EMAs, no other oscilattors or indicators required. NO advanced charting softwares required.
- System is based on following the ULTIMATE indicator available i.e price action.
- Keeps a trader in the trend, lets the full swing to complete. Never gets a trader against the trend.
- Since we are just following price action, we dont need to worry about divergences etc.
- Works brilliantly in a trending market but can whipsaw in extremely ranging markets. However this can be overcome by certain rules and money management to be explained later in this thread.
So this is what the strategy is folks, do some chart reading and see how it works on EOD charts. Do post any questions you have here.
FAQs
How do you use EMA effectively? ›
When a trader is using an exponential moving average indicator within their strategy, they may choose to buy when the price dips near, or just below, the EMA line. On the other hand, when the EMA is falling, traders may choose to sell when the price is rallying towards, or just above the EMA.
What is the most profitable moving average strategy? ›The best way to trade moving average is to use the crossover strategy, where a shorter-period moving average crossing above a longer-period moving average generates a bullish signal, and vice versa for a bearish signal. This method helps indicate potential changes in the market trend.
What is the most reliable EMA crossover? ›The best length for EMA crossover varies depending on the market, timeframe, and trading objectives. Shorter EMAs (e.g., 5 or 9) tend to provide more frequent signals but can be susceptible to noise and false signals. Longer EMAs (e.g., 20 or 50) offer more reliable signals but may lag behind the price action.
How to use three moving averages? ›The triple moving average crossover system generates a signal to sell when the slow moving average is above the medium moving average and the medium moving average is above the fast moving average. When the fast moving average goes above the medium moving average, the system exits its position.
Which indicator works best with EMA? ›Buy signals can be detected using EMA when the short-term EMA surpasses the long-term EMA from below, suggesting a possible uptrend. For enhanced precision in analysis, it is typical to use additional indicators such as MACD and RSI alongside EMAs.
What is the best EMA timeframe? ›Short-term traders typically rely on the 12- or 26-day EMA, while the ever-popular 50-day and 200-day EMA is used by long-term investors. While the EMA line reacts more quickly to price swings than the SMA, it can still lag quite a bit over longer periods.
What is the most consistently profitable option strategy? ›The most successful options strategy for consistent income generation is the covered call strategy. An investor sells call options against shares of a stock already owned in their portfolio with covered calls. This allows them to collect premium income while holding the underlying investment.
What is the simplest most profitable trading strategy? ›One of the simplest and most widely known fundamental strategies is value investing. This strategy involves identifying undervalued assets based on their intrinsic value and holding onto them until the market recognizes their true worth.
What trading strategy has the highest win rate? ›If you're looking for a high win rate trading strategy, the Triple RSI Trading System is definitely worth checking out. This system uses three different Relative Strength Index (RSI) indicators to identify potential buy and sell signals in the market.
What is the best EMA length for day trading? ›A 9 or 10-day moving average period is the best-moving average for intraday trading. However, 21-day EMA can be also used for day trading but you have to apply another technical indicator in combination with moving averages crossover to know the trend reversal.
What are the best 3 EMA settings? ›
The strategy's effectiveness is attributed to the confirmation provided by all three EMAs, which offer strong bullish and bearish signals for entry and exit points. The recommended EMA combination is the 9-day, 21-day, and 55-day EMAs, which balance short-term and long-term trend identification.
What is the best EMA cross for a 5 minute chart? ›It makes EMA more sensitive and more responsive to the current market conditions. Therefore, the exponential moving average may be considered the best moving average for a 5 min chart. A 20-period moving average will suit best.
What is the most accurate moving average strategy? ›The most accurate moving average strategy depends on various factors such as the market conditions, the timeframe you're trading, and your risk tolerance. However, one commonly used and relatively reliable strategy is the crossover method, particularly the “golden cross” and “death cross” signals.
What is the 3 30 EMA strategy? ›The 3-30 rule in the stock market states that the price of a stock moves in cycles. The first three days after a significant event often have the most significant price change. After that, the share price usually stabilizes or corrects for about 30 days before potentially starting a new cycle.
What is the 3 EMA strategy? ›The triple exponential moving average (TEMA) uses multiple EMA calculations and subtracts out the lag to create a trend following indicator that reacts quickly to price changes. The TEMA can help identify trend direction, signal potential short-term trend changes or pullbacks, and provide support or resistance.
What is the 5 10 20 EMA strategy? ›Overview. This strategy calculates the 5-day, 10-day and 20-day exponential moving average (EMA) lines and uses the Super Trend indicator to generate buy and sell signals. It generates buy signals when the 5-day EMA crosses above the 10-day EMA and both the 5-day and 10-day EMA cross above the 20-day EMA.
What is the best EMA setting for trend? ›- Short-Term EMAs (like the 8ema or 9ema): These EMAs are ideal for capturing short-term trends and quick market movements. ...
- Medium-Term EMAs (like 21ema, 30ema, or 50ema): These provide a broader view of the market trend, smoothing out short-term volatility.
The Bottom Line. Foreign currency traders use a number of tools to help them establish buy and sell points for the currencies they trade based on price trends. One of these is the exponential moving average (EMA). Traders typically use a short-term and a long-term EMA to trace the point of convergence between the two.