There this universal method of a trading strategy called moving average crossovers. It has two kinds which are long term and short term. You can benefit from long term exponential moving average by using a macro view. Anyway, in this article, I’m going to focus on short term averages such as 5 EMA and 8 EMA.
The short term moving average crossing over denotes that the short term trend has changed and the direction of the cross should be used for trade. The process of this strategy works very simple. 5 EMA and 8 EMA serve as indicators. If 5 EMA crosses 8 EMA upward, then you are going to look for long trade entries, and the direction of the trend is bullish or uptrend.
On the contrary, if 5 EMA will cross downward 8 EMA then you are going to look for short trade entries, and the direction of the trend is bearish or downtrend. This method lasts for 4 hours in a daily time frame and also compatible with any currency pairs. Take note that this is a short term trading strategy, so manage your expectations when it comes to profitability.
Rules for Buying
- Anticipate until 5 EMA crosses 8 EMA in an upward motion. The EMAs will cross at the high of the candlestick.
- You must enter long position or simply buy.
- 5 to 10 stop loss must be placed below the low of the candlestick.
Rules for Selling
- Anticipate until 5 EMA crosses 8 EMA in a downward motion. The EMAs will cross at the low of the candlestick.
- You must enter a short position or sell.
- 5 to 10 stop loss must be placed above the high of the candlestick.
Taking Profits
There are several options for you to making a profit.
- You can utilize a cross of the moving averages.
- Setting your reward must be at least three times the risk on that trade.
- Take a look at the closest chart structure.
- You can take reward at a previous swing low for an order of sale and a preceding swing high for an order of buy.
- To signal your desired trading exit, make use of a reversal chart pattern.
Keeping a Profitable Trade
There are several options for you to keep a profitable trade.
- The trade shifts to your advantage, and you want to maintain profits. All you need to do is move stop loss and place behind the low or high of each following candlestick that forms.
- For short trades, move stop loss and place above the high of the candlesticks that sustain to create lower highs.
- For long trades, move to stop loss and place below the low of the candlesticks that sustain to create higher lows.
- Make use of trading stop placement tips. It is a wise choice in managing a trade.
- Set your stop-loss after gaining 50 to 80 pips daily and 25 to 40 pips at a time frame of 4 hours.
- You can utilize an ATR trailing stop.
Pros and Cons of 5 EMA and 8 EMA Forex Trading Strategy
- There is a possibility that the market has already made a big wave without you even noticing it because sometimes there is a delay in the signals. As a result, it could cause a slight retracement.
- This strategy is excellent for trending markets because it has a significant potential for profitability.
- In a ranging market, this strategy can perform poorly.
- It’s convenient, especially for those traders who want to start learning about Forex trading.
- Stop-loss depends on your desired time frame. You need to protect your capital by adjusting and making your trade risk acceptable.