Today, I want to dive into a highly effective trading strategy that was specifically designed for scalp and day traders. The strategy combines several benefits, from simplicity to clear entry and exit signals and competitive success rate.
Let’s dive right into it!
Exponential Moving Average — The Heart Of The Strategy
Before I explain the strategy in detail, I want to touch on the indicator that is used in the strategy: The Exponential Moving Average. This is essential to really grasp the essence of the strategy.
What Is The Exponential Moving Average?
Exponential Moving Averages, or EMAs, are moving averages that emphasize the most recent data points. This weighting is what distinguishes EMAs from Simple Moving Averages (SMAs). Here’s why this is essential:
- Reactivity: Compared to SMAs, EMAs respond quicker to price changes.
- Reduction of “Noise”: EMAs can filter out “noise” or short-term price fluctuations, providing a clearer picture of the overall trend direction. This helps traders avoid making decisions based on short-lived price spikes or drops.
- Adaptability: Especially in the crypto market, prices can change dramatically quickly. EMAs adapt more swiftly to these changes.
- Significance in Crypto: In the volatile landscape of cryptocurrencies, where prices can experience significant shifts within hours, the rapid responsiveness of EMAs can be a boon.
The Length As Decisive Attribute
The length or period of the EMA is a crucial factor in determining its sensitivity to price changes. A shorter EMA, like the EMA10, reacts more swiftly to recent price moves, making it perfect for capturing short-term trends. Conversely, a longer EMA, such as the EMA200, is slower to react but gives a more stable representation of an asset’s long-term trend direction.
EMA Scalp Trading Strategy
Alright, now that we are equipped with the theoretical knowledge, it is time to talk about the strategy.
As mentioned, the strategy is particularly designed for scalpers and short-term traders. Therefore, the strategy proved to work well on the 15M chart.
Overall, the strategy utilizes three different EMAs. First of all, you should use EMA200 to determine the overall trend and derive your trading strategy from it. What does this mean?
- If the current price of is above the EMA200, an asset is in a macro-uptrend. In this case, we only open “Long” trades. We don’t trade against the overall trend.
- If the current price is below the EMA200, an asset is considered to be in a downtrend. In this case, we only open “Short” trades.
(A quick personal note: When I started trading, I thought f* the trend. I want to trade as often as possible, and I can beat the market. After many years of trading, I can tell you that the market is smarter. Please, don’t trade against the overall trend.)
We use the EMA10 and EMA25, both short-term indicators, to quickly identify market movements. So, the idea behind the strategy is to ride short-term trends quickly. The duration of a trade is often only a few hours.
- Long Trades: Open a long trade when the EMA10 crosses the EMA25 from bottom to top.
- Short Trades: Conversely, open a short as soon as the EMA10 crosses the EMA25 from top to bottom.
Simple, isn’t it? So, now that you’ve learned when and how to enter, it’s to take a look at the exit.
Exit Your Trade
One of the reasons I like this strategy is because it clearly defines when to exit trades. Here we go:
- Long Trade: You close your long trade as soon as a candle closes below the EMA10.
- Short Trade: Conversely, when a candle closes above the EMA10, you close your Short.
Here’s a recent example of the strategy’s usage. By using the trade you would have perfectly caught the pump and made more than 3% in a few hours.
How to Utilize the Strategy
As described above, spot entry signals — especially when trading a larger number of assets- are quite complex.
For hands-on traders, applying this strategy manually on TradingView is possible, though it requires a keen eye and proficiency in setting up the said indicators. Each entry or exit condition needs to be scrutinized in real time.
However, for those seeking a streamlined experience, CryptoKnowledge offers a straightforward solution. The platform has pre-configured strategy that allows users to subscribe for real-time signal alerts. This saves time and ensures precision, eliminating the chances of manual oversight.
Please note: The information presented in this article is for educational purposes only and does not constitute financial advice. Always do your own research before making any investment decisions.
Disclaimer: The success rate mentioned is based on historical backtests of the Parabolic Trader strategy. It’s important to understand that past performance does not indicate future results. Trading cryptocurrencies and other financial instruments carries risks; no strategy can guarantee profits in every scenario. Always conduct thorough research and seek advice from financial professionals before making investment decisions.