In my ongoing journey through the labyrinth of trading strategies, I chanced upon an enhancement to a tried-and-tested method that genuinely excited me. Let’s dive into it!
Like many of you, I’ve always had a soft spot for Exponential Moving Averages (EMA). They are intuitive, straightforward, and, when used correctly, can be incredibly potent. But what if I told you that there’s a way to supercharge your EMA strategy, breathing new life into its predictive prowess? Intrigued? Read on.
The Traditional EMA To grasp the significance of this newfound tweak, let’s first revisit the basics. At the core of many trading strategies lie the Exponential Moving Averages. Here’s one example of a very common EMA strategy.
3 EMA Strategy
We use three different Exponential Moving Averages:
- EMA200: Reflecting the average price over the past 200 periods, this is a fundamental tool for identifying longer-term trends.
- EMA100: This offers insights into a slightly shorter window, detailing the average price across the last 100 periods.
- EMA25: The quickest of the trio, the EMA25 shows us the average price over a mere 25 periods. Consequently, it’s incredibly responsive to recent price changes.
Each of these has its merits and offers a layered understanding of market behavior. But what if we could amplify their power?
So, How Does It Work?
For Long Signals:
- Ensure the price floats above the EMA200.
- Look for the EMA25 to be atop the EMA100, which should be above the EMA200.
- A crucial moment: The price should cross below the EMA25 but remain above the EMA100. Within the following five candles, if the price rises above the EMA25, that’s our cue to enter.
For Short Signals:
- We want the price to be lurking below the EMA200.
- The EMA25 should be beneath the EMA100, which in turn is below the EMA200.
- Here, we’re looking for the price to ascend above the EMA25 but still be below the EMA100. If in the subsequent five candles, it descends below the EMA25, it’s time to make our move.
Enter the Game-Changer: ADX
That’s right, the magic ingredient in this cocktail is none other than the Average Directional Index, or ADX.
While EMAs provide a glance at price direction, the ADX gauges the trend’s strength, irrespective of its direction. A reading above 30 on this indicator generally hints at a robust trend. Introducing the ADX into our EMA strategy adds an essential layer of confirmation, ensuring we’re not just riding any wave but a powerful, momentum-backed one.
Accordingly, we add the ADX to our entry signal and open a trade only if the ADX is 30 or above.
Adding the ADX will lower the amount of trades; however, it is possible to improve the success rate significantly. Again, you are no longer just trading the trend but also the trend strength. And by doing so, you make the entire trading system much more robust.
Bringing It All Together on CryptoKnowledge
While all of this might seem intricate, especially if you plot these on platforms like TradingView, there’s good news. This entire strategy, with all its nuances, is readily available on CryptoKnowledge.
Instead of tediously setting up each indicator and tracking them, with CryptoKnowledge, you can simply subscribe and receive timely signals directly. It’s convenience, precision, and power, all bundled into one platform.
So, there you have it. A cherished strategy, a sprinkle of innovation, and a platform that brings it all to your fingertips. The financial markets might be tumultuous, but with the right tools, we can navigate them with confidence and flair. Happy trading!