The Double EMA trading strategy

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200 EMA and 15 EMA crossover profitable trading strategy

Double EMA (Exponential Moving Average) crossover strategy is easy and profitable. This crossover strategy is based on 200 and 15 EMA. 200 EMA is very important technical tool to identify market trend. So you can get signals according to the trend. As this is a trendy strategy, so success rate of this strategy is excellent. If you get a solid trend in h4 or daily time frame, then you can gain 500-1000 pips from one trade only.

How to get buy signal
First you need to wait for crossover in the up direction. When 15 EMA crosses 200 EMA from below to upper, then you need to look for buy entry. After crossover if price moves rapidly, then you need to wait for some retracement. When price takes little retrace and touch 15 EMA like as below image, then you will get buy signal.

How to get Sell signal
For sell signal, you need to wait for crossover in the down direction. When 15 EMA crosses 200 EMA from upper to below in the down direction, then you have to look for sell entry. After crossover, you can take sell entry. But it is better to wait for little retracement and when price touches 15 EMA like as below image, then you will get sell signal.

Time frame: H1, H4, Daily. You can use on shorter time frame for scalping

Currency pairs: All pairs.

Take profit and Stop loss: For scalping take profit will be 30-40 pips. If you can use on h4 and daily, you can set 100-200 pips take profit. You should close half position when you get 100 pips, then you need to move stop loss at entry point. Then you can wait for more pips. If you can catch a solid trend, then you can gain 800-1000 pips in cross pairs like as above image.
You should give stop loss below or above recent support or resistance. You can put stop loss below 200 EMA for buy entry. Similarly you can set stop loss above 200 EMA for sell entry.

Risk warning: This EMA crossover strategy is suitable for trendy market. So you should not apply this strategy on ranging market area. You need to keep patience for more profit from this trendy trading strategy. You must follow money management theory for following this EMA crossover strategy. This is easy strategy, but you need to practice this on your demo account before applying this on your live account.

The “Double EMA” trading strategy

Пересечение двух скользящих средних часто используют в составе комбинированных торговых стратегий — как сигнал для поиска точек входа на младшем таймфрейме, для открытия сделки после подтверждения от других индикаторов, как самостоятельную торговую систему (редко).

Чтобы не сидеть у монитора, ожидая, когда же мувинги пересекутся, удобно пользоваться специальным инструментом — индикатором пересечения двух МА с алертом. Он подаст звуковой сигнал в нужное время, и вы не пропустите момент входа в рынок. Разберемся, как настроить и использовать в работе такие инструменты.

Индикатор MA Signal

Простой индикатор MA Signal рисует на графике валютной пары стрелки и подает звуковой сигнал после закрытия первой свечи после пересечения скользящих средних. В настройках можно выбрать период, сдвиг, цены для построения и метод МА, а также настроить цвета. Если вам нужен звуковой сигнал по пересечению текущей цены и средней, укажите период первого мувинга 1.

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Так выглядит график валютной пары с установленным индикатором (период средних — 7 и 14, платформа брокера Alpari MT-4)

Красными стрелками отмечены свечи, которые закрылись после пересечения быстрой средней медленной сверху вниз (синяя МА с периодом 7 пересекает красную МА с периодом 14 сверху вниз). Это сигнал на продажу валютной пары.

Синими стрелками отмечены свечи, которые закрылись после пересечения медленного мувинга быстрым (МА 7 пересекает МА 14) снизу вверх — сигнал на покупку.
Настройки индикатора пересечения двух МА с алертом выглядят так.

Во вкладке «Цвета» можно настроить цвет линий и стрелок.

Индикатор пересечения двух МА с алертом Double EMA crossover

Принцип работы этого индикатора похож на алгоритм предыдущего. Отличие заключается в том, что на самом графике валютной пары показываются только стрелки без самих скользящих средних. Помимо алерта на пересечении 2-х МА, индикатор отправляет сообщение на e-mail, если это указать в настройках.

На графике результаты работы индикатора выглядят в виде стрелок, указывающих на сигнальную свечу. Таковой считается та, которая закрылась после пересечения мувингов.

Индикатор 3 MA cross with alert

Этот индикатор пересечения двух МА с алертом отличается от двух предыдущих. Он позволяет следить одновременно за тремя мувингами — быстрым, средним и медленным. По умолчанию индикатор показывает на графике 3 средних с периодами 10, 20 и 40.

Если быстрая и средняя средние пересекаются, над сигнальной свечой появится ромб. Если пересекутся быстрая и медленная МА, вы увидите стрелку. Цвет фигур зависит от направления пересечения. Красные стрелки и ромбы означают сигнал на продажу, синие — на покупку. Иногда три средних пересекаются одновременно, как в примере ниже. Над сигнальной свечой в таком случае появится и ромб, и стрелка одновременно.

Настройки этого индикатора пересечения двух МА с алертом позволяют изменить тип, метод и период средних, выбрать цвета и толщину линий и стрелок, отключить или подключить звуковые сигналы и оповещения о пересечении на электронную почту.

Как и с чем использовать индикаторы в торговле

Скользящие средние с алертом используют точно так же, как и стандартный индикатор без звукового оповещения. Не стоит входить в рынок только по пересечению двух или трех мувингов. Используйте другие инструменты, подтверждающие сигнал на открытие сделки.

Лучше всего использовать индикатор пересечения двух МА в стратегиях торговли, предполагающих поиск точек входа на младших таймфреймах после анализа ситуации на старших. Разберем на примере.

На дневном графике валютной пары евро-доллар сформировался равноудаленный канал. В настоящий момент цена находится у его нижней границы.

По правилам торговли на отскок необходимо дождаться, пока цена сформирует новую свечу, которая закроется внутри канала. Если перейти на младшие таймфреймы, войти в рынок можно раньше. Откроем период H1.

Здесь пара продолжает движение в нисходящем тренде, однако он уже не такой сильный как раньше. Внизу цена сформировала уровень поддержки (желтая линия). Вверху в роли сопротивления выступают скользящие средние. В рынок пока входить рано, необходимо наблюдать за ситуацией.

Если цена не пробьет уровень поддержки вниз, у нее есть шанс развернуться. Когда три скользящие средние пересекутся вверх, можно открывать сделку на покупку или же перейти еще на таймфрейм ниже, чтобы уточнить вход.

Подтверждать сигнал по пересечению двух средних можно с помощью других индикаторов. Для этой роли отлично подходят осцилляторы: стохастик, RSI, CCI, OsMA, MACD.

Разберем ситуацию на дневном графике пары евро-доллар. Скользящие средние с периодами 7 и 21 пересеклись на продажу, о чем предупреждает красная стрелка под свечой. Индикатор MACD в это время находится в отрицательной зоне. Гистограмма удаляется от нулевой отметки, а значит нисходящая тенденция усиливается. Вход в рынок с продажами подтвержден.

Если вы используете стохастик, подтверждающим сигналом при пересечениях средних будет выход линии индикатора из зоны перекупленности при продажах и выход из области перепроданности при покупках. Границы этих зон можно оставить по умолчанию (уровни 20 и 80), а можно изменить на 30 и 70. Во втором случае торговая стратегия покажет больше сигналов.

Преимущества и недостатки

Алерт на пересечении 2-х МА полезен, если ваша торговля напрямую завязана на скользящих средних. Вам не придется сидеть у монитора и постоянно открывать терминал, чтобы узнать текущую ситуацию. Индикатор подаст сигнал, когда мувинги пересекутся. Это главное преимущество инструментов с алертом в отличие от стандартного Moving Average, встроенного в терминал МТ4.

Из недостатков можно отметить запаздывание сигналов. Этим страдают любые трендовые инструменты. Часто мувинги пересекаются в тот момент, когда тренд уже набрал обороты, однако этот недостаток присущ любой модификации индикатора «Скользящие средние». Во время боковой тенденции инструмент не работает.

Все индикаторы, описанные в статье, вы можете скачать на нашем сайте по ссылке выше.

Лучше всего для торговли подойдут брокеры – Alpari, RoboForex или Forex4You.

Double Exponential Moving Averages Explained

Traders have relied on moving averages to help pinpoint high probability trading entry points and profitable exits for many years. A well-known problem with moving averages, however, is the serious lag that is present in most types of moving averages. The double exponential moving average, or DEMA, provides a solution by calculating a faster averaging methodology. (See also: Moving Averages.)

History of the Double Exponential Moving Average

In technical analysis, the term moving average refers to an average of price for a particular trading instrument over a specified time period. For example, a 10-day moving average calculates the average price of a specific instrument over the past 10 days, a 200-day moving average calculates the average price of the last 200 days and so on. Each day, the look-back period advances to base calculations on the last X number of days. A moving average appears as a smooth, curving line that provides a visual representation of the longer-term trend of an instrument. Faster moving averages, with shorter look-back periods, are choppier; slower moving averages, with longer look-back periods, are smoother. Because a moving average is a backward-looking indicator, it is described as lagging.

The double exponential moving average (DEMA), shown in Figure 1, was developed by Patrick Mulloy in an attempt to reduce the amount of lag time found in traditional moving averages. It was first introduced in the February 1994 issue of the magazine Technical Analysis of Stocks & Commodities in Mulloy’s article “Smoothing Data with Faster Moving Averages.” (For more, see: Technical Analysis Tutorial.)

Figure 1: This one-minute chart of the e-mini Russell 2000 futures contract shows two different double exponential moving averages; a 55-period appears in blue, a 21-period in pink.

Calculating a DEMA

As Mulloy explains in his original article, “the DEMA is not just a double EMA with twice the lag time of a single EMA, but is a composite implementation of single and double EMAs producing another EMA with less lag than either of the original two.” In other words, the DEMA is not simply two EMAs combined, or a moving average of a moving average, but it is a calculation of both single and double EMAs.

Nearly all trading analysis platforms have the DEMA included as an indicator that can be added to charts. Therefore, traders can use the DEMA without knowing the math behind the calculations and without having to write or input any code.

Comparing the DEMA With Traditional Moving Averages

Moving averages are one of the most popular methods of technical analysis. Many traders use them to spot trend reversals, especially in a moving average crossover, where two moving averages of different lengths are placed on a chart. Points where the moving averages cross can signify buying or selling opportunities.

The DEMA can help traders spot reversals sooner because it is faster to respond to changes in market activity. Figure 2 shows an example of the e-mini Russell 2000 futures contract. This one-minute chart has four moving averages applied:

  • 21-period DEMA (pink)
  • 55-period DEMA (dark blue)
  • 21-period MA (light blue)
  • 55-period MA (light green)

Figure 2: This one-minute chart of the e-mini Russell 2000 futures contract illustrates the faster response time of the DEMA when used in a crossover. Notice how the DEMA crossover in both instances appears significantly sooner than the MA crossovers.

The first DEMA crossover appears at 12:29, and the next bar opens at a price of $663.20. The MA crossover, on the other hand, forms at 12:34, and the next bar’s opening price is at $660.50. In the next set of crossovers, the DEMA crossover appears at 1:33, and the next bar opens at $658. The MA, in contrast, forms at 1:43, with the next bar opening at $662.90. In each instance, the DEMA crossover provides an advantage in getting into the trend earlier than the MA crossover. (See also: Moving Averages Tutorial.)

Trading With a DEMA

The above moving average crossover examples illustrate the effectiveness of using the faster DEMA. In addition to using the DEMA as a standalone indicator or in a crossover setup, the DEMA can be used in a variety of indicators in which the logic is based on a moving average. Technical analysis tools such as moving average convergence divergence (MACD) and triple exponential moving average (TRIX) are based on moving average types and can be modified to incorporate a DEMA in place of other more traditional types of moving averages.

Substituting the DEMA can help traders spot different buying and selling opportunities that are ahead of those provided by the MAs or EMAs traditionally used in these indicators. Of course, getting into a trend sooner rather than later typically leads to higher profits. Figure 2 illustrates this principle – if we were to use the crossovers as buy and sell signals, we would enter the trades significantly earlier when using the DEMA crossover as opposed to the MA crossover. (For more, see: How to Use a Moving Average to Buy Stocks.)

Bottom Line

Traders and investors have long used moving averages in their market analysis. Moving averages are a widely used technical analysis tool that provides a means of quickly viewing and interpreting the longer-term trend of a given trading instrument. Since moving averages by their very nature are lagging indicators, it is helpful to tweak the moving average in order to calculate a quicker, more responsive indicator. The DEMA provides traders and investors a view of the longer-term trend, with the added advantage of being a faster moving average with less lag time. (For additional reading, check out: Moving Average MACD Combo and Simple vs. Exponential Moving Averages.)

SMA and EMA Crossover: Moving Average Trading Strategies

A number of sophisticated trading systems use crossover as their underlying approach. Taking the basic idea, they refine it to improve its reliability and to lessen the problem of false buy/sell signals and latency.

How Do Crossover Strategies Work?

The principle behind the crossover system is that it tells us a trend is changing.

To understand this, take a look at the four charts in Figure 1.

At time t+1 there are three straight lines, the price, the moving average 1 (MA 1) and the moving average 2 (MA 2). At time t+2, the price line starts to fall. Notice that the blue line (MA 1) starts to fall next after the price line. Meanwhile at this time the red line (MA 2) is still rising.

At time t+3, all three lines are falling. The price, moving average 1 and moving average 2 are now all on the same path again after the price changed direction from rising to falling.

Finally at time t+4, the price starts to rise again and the same process happens again but in reverse. The blue line is the first to react to the price turning followed by the red line.

The length of time that the moving average uses in its calculation is the period. Moving average 1, the blue line, is a fast moving average because it uses fewer data points, or a shorter time period in its calculation. Moving average 2, the red is a slow moving average because it takes a larger sample of points and therefore has a slower reaction time to changes in price.

The longer the period of the average, the more stable the line is but the slower it is to react to changes.

Crossover Events

A crossover occurs when two different moving average lines cross over one another. In the chart above, time t+2, and t+3, show a bearish crossover. This takes place when a fast moving average crosses down through a slow moving average. This implies that the trend is falling or becoming bearish.

At time t+4, the trend changes again and this produces a bullish crossover. The blue, or fast moving average, is the first to react. It crosses up through the slow line. After the crossing, all three lines then follow the same path as the trend continues upwards.

Some might say why not just look at the price, because that tells us instantaneously what’s happening. The reason for using the averages rather than the price is that in real markets, trends do not move in straight lines but rather follow meandering paths with many false stops and starts.

The purpose of the average lines is to smooth out the random movements and discover the underlying price trends.

Which Averages Should You Use?

The first and most basic problem that a crossover trader faces is which moving average pair to use.

In hindsight we can always back test a market to find some unique moving average pair that will create a profitable strategy. Yet this is of little use because as we all know the past is not necessarily a reliable predictor of the future.

The Death Cross and the Golden Cross

Perhaps the most common pairing is the 50-day verses the 200-day moving average. When the 50-day cross up through the 200-day moving average this is said to be a golden cross. It signifies to many the possibility of a new bull market.

On the flip side, when the 50-day moving average crosses down through the 200-day moving average this is said to be a death cross. It’s a sign of a market that’s turning bearish.

Simple vs exponential moving averages

The other decision is in the formula that is used to average prices over time. Simple moving averages apply the same weighting to all prices.

On the other hand, exponential moving averages apply higher weighting to more recent prices and lower weighting to price further back in time.

Exponential moving averages would on the face of it seem to be better suited because they will be more responsive to recent price changes. But at the same time this also makes them more responsive to extreme and sudden price moves. This may or may not be a good thing, depending on the market conditions.

Typically, in SMA and EMA the price taken at each interval is the mid-price. Yet this can change and sometimes the open or close price is preferred.

A Basic MA Crossover Strategy

The most basic moving average crossover strategy is as follows:

Buy side entry:
Buy when fast line crosses up through slow line
Set stop loss below slow moving average support line

Sell side entry:
Sell when fast line crosses down through slow line
Set stop loss above slow moving average resistance line

SMA Strategy Results

We tested the SMA-50-200 strategy on five of the principal currency pairs, EURUSD, USDJPY, GBPUSD, USDCHF and USDCAD. The test was done using the past ten years’ worth of historical chart data using the hourly period chart (H1).

In the test, a bearish crossing generates a sell signal and a bullish crossing generates a buy signal. We measured the market reaction from the earliest possible entry time over the following 30 time intervals (30 hours for the H1 chart).

Using the principle of equal risk and return we categorized each trade entry as correct or incorrect depending on the direction the market took, taking into account drawdown periods.

The table below summarizes the results of the test.

SMA-50-200 (H1) EURUSD USDJPY GBPUSD USDCHF USDCAD Total
Bearish crosses 238 249 260 232 245 1224
Percentage correct 53.8% 49.8% 49.2% 54.3% 53.1% 52.0%
Bullish crosses 238 248 261 230 245 1222
Percentage correct 52.5% 45.6% 51.0% 58.7% 55.1% 52.5%

There were a total of 2446 crossover events, of which 1224 were bearish and 1222 were bullish.

As shown in the table, when following the SMA strategy, 52.5% of the bullish crossovers were correct and 52% of the bearish crossovers where correct.

Over this time frame then, our simple SMA strategy produced a result slightly better than expected by chance alone.

On the daily chart, the results were comparable, though the number of crossings is less than the hourly test.

SMA-50-200 (D1) EURUSD USDJPY GBPUSD USDCHF USDCAD Total
Bearish crosses 20 24 27 27 23 121
Percentage correct 45.0% 58.3% 40.7% 59.3% 52.2% 51.2%
Bullish crosses 20 24 27 27 22 120
Percentage correct 45.0% 58.3% 59.3% 51.9% 50.0% 53.3%

EMA Strategy Results

We performed the same test using the EMA-50-200 strategy. The results are summarized in the table below.

EMA-50-200 (H1) EURUSD USDJPY GBPUSD USDCHF USDCAD Total
Bearish crosses 226 255 261 250 256 1248
Percentage correct 54.0% 56.1% 51.0% 46.8% 48.4% 51.2%
Bullish crosses 228 252 259 250 255 1244
Percentage correct 53.1% 38.1% 49.8% 51.2% 57.7% 49.9%

In our tests, the EMA proved to be less successful than SMA. The EMA strategy produced 51.2% correct bearish entries, but only 49.9% correct bullish entries. This result is no better than random.

The EMA strategy performed much better on the daily chart.

EMA-50-200 (D1) EURUSD USDJPY GBPUSD USDCHF USDCAD Total
Bearish crosses 19 19 25 25 20 108
Percentage correct 47.4% 57.9% 52.0% 60.0% 50.0% 53.7%
Bullish crosses 20 19 25 24 19 107
Percentage correct 60.0% 63.2% 64.0% 41.7% 57.9% 57.0%

The bullish crossovers were correct 57% of the time, and the bearish crossings were correct 53.7% of the time. Though given the low number of crossings that can be analyzed on the daily chart, we have to be slightly cautious with these results.

False Crossover

One of the complications all crossover strategies need to deal with is that of false crossover signals. False crossings or false crossovers happen when the moving average lines cross one another briefly, but then revert back again.

On the chart this means that the trend only changes direction for a short time but then continues in the same direction. Figure 2 shows an example for USDCAD – United States dollar versus Canadian dollar.

Here with USDCAD, a dip in the bullish trend is enough to generate a crossing of the 50-200 day moving average.

However, the market turns bullish again and shortly after the false sell signal, a new buy signal is generated. This would almost certainly have resulted in a loss on the short positions, though this could have been recouped if the subsequent buy signal was acted on.

The Latency Conundrum

The other issue faced by crossover strategies, and most technical strategies in general, is that of latency. Latency is the delay and the consequence of it is that by the time the signal is triggered, the market has already turned again.

The chart in Figure 3 shows USDCAD daily again. Here the buy signal appears after a strong bullish breakout. The crossover duly takes place however by the time the crossover triggers the buy signal, the bullish move is nearly over.

By following the strategy, the buyer would enter at no lower than 1.0279, but the market peaks 7 days later at 1.0658. Then the trend turns bearish again and soon falls well below the buy entry level.

Double and Triple EMA Systems

There are a few ways to overcome or alleviate the above weaknesses in the crossover strategy. One is to use a position accumulation method. With this, the position size is increased or decreased according to risk.

In this way, the position is only increased as and when a trend develops in strength. False signals are still produced, but they are exited quicker so the amount risked on each new trend is lower. This is one of the cornerstones of the Turtle Trading System. The Turtle however uses a shorter moving average pair.

The thinking behind accumulation is that false signals can’t be eliminated altogether but instead we can increase or decrease the risk according to a trend’s longevity.

Alternatively, there are enhanced crossover strategies that try to alleviate some of these problems. The Triple EMA and Double EMA are two such examples.

Summary

Crossover strategies are simple yet as we’ve shown can be profitable under the right market conditions. This important class of strategy is often the foundation of more advanced trading systems such as trend followers.

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I just had to comment and say you are one of the first to mention the proper SMA and EMA breakdowns and crossovers. Thanks a lot.

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