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The exponential moving average is widely used by professional scalpers. Some people often called it the EMA. Traders love to use this moving average as it helps them to find the dynamic support and resistance level. You might be wondering that SMA is better than EMA. But in reality, every indicator has its functions. And it depends on the trader whether he is going to use the EMA or SMA. However, if you rely on the lower time frame, we strongly suggest that you rely on the EMA as they are more reactive to the changes in price.
In this article, we will share some valuable tips related to the use of EMA. After reading this article, you should be able to take the trades with the help of EMA without facing any trouble. So, without any delay, let’s get into the details.
Dynamic Support and resistance level
The EMA provides dynamic support and resistance level to the traders. If you carefully assess the EMA levels in the chart, you will see that the price is respecting that level. If the price trades above the EMA, you should consider the EMA as a strong support level. On the contrary, when the price trading below the EMA, it will act as a strong resistance zone. So, people who have good knowledge about the price action confirmation signals, often use the EMA levels to take their trades in the market.
Finding the trend direction
With the help of the exponential moving average, you should be able to find the direction of the trend. Most people think that finding the direction of the trend is a very tough task. But if carefully assess the condition of the market, you will realize that finding the direction of the trend is one of the easiest tasks in the world. You should be able to make wise decisions with the help of the EMA. So, how do we do that? Just check the slope of the EMA. If it shows a positive slope, you should be looking for the buying signals only. On the contrary, it shows a negative slope, consider the trend as bearish.
To know more about the use of moving average, you may use the demo account from Saxo capital markets Singapore. Once you do that, you can learn things without risking any real money.
Helps you to ride the trend
Some of the novice traders want to use the trailing stop loss from the starting of their career. But analyzing the support and resistance level constantly to find the new stop loss point for each trade is a very tough task. But you can do so with the help of the EMA. But in such a case, it would be wise to use different periods of EMA. By doing so, you will get a specific support and resistance zone and thus it will give you trade much more space to work properly.
Finding the period
The majority of novice traders don’t have any idea to set the period in the EMA. But we are going to make things easier. If you intend to trade in the hourly or higher time frame, you should set the period to 100 or 200. On the contrary, if you believe scalping is the best choice, you should be using 7 or 21 periods EMA. However, this number is not absolute. You may use any number to find the support and resistance level. But if you rely on custom numbers, make sure to back-test the performance of the EMA in the demo trading account. By doing so, you will gain more confidence in your trading approach.
Integrate with your system
Never trade the market based on the EMAs only. You have to integrate the EMA with an existing trading system. But do not integrate the EMA with a complex trading system. Once you have incorporated your trading system with the exponential moving average, back-test the performance of the system. You must feel confident with the modified trading strategy or else it is better to revise the system.
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