I can’t do that if my charts are cluttered with indicators – one contradicting the other. When you look at charts, you want to have instant orientation and be able to make profitable trades. Such EMA bounces are entry opportunities where the risk is the lowest and the reward potential is the highest.īelow chart shows an example of how the QQQ (Nasdaq-100 ETF) bounced off its weekly 200 EMA in March 2020: Price finds support at its 200 EMA in the weekly chart The price can be rejected or ‘bounced’ off at the 200 EMA which is considered a sign of continuation of the long-term trend. This allows you to observe how the stock price behaves as it approaches and bumps against the EMA. Moving averages act as support or resistance when the price approaches it. What Is the Moving Average Bounce Trading Strategy I’m therefore proposing a much better alternative, the moving average bounce trading strategy. It’s been proven that this strategy doesn’t work. Make no mistake: Amateur traders will often encounter the moving average crossover strategy discussed in internet forums. Use the 200 EMA in the daily, weekly and monthly time frames as a start. When the market is in a strong and sustained uptrend, the EMA will also show an uptrend and vice-versa for a downtrend. The mother of all EMAs is the 200-period EMA, or simply 200 EMA, and is used as a signal for long-term trends. It’s a weighted moving average that reacts faster to recent price changes. I’ve written more about what the exponential moving average is in a separate post. You’ll often hear about the simple moving average, or SMA, but the more reliable moving average is actually the exponential moving average, or EMA. I used this strategy in a real-world scenario before where I turned oversold Chinese stocks into $110,340. Stocks are considered bullish if the price is above the moving average and bearish if it is below.Ī simple moving average trading strategy is to buy as long as the price remains above it and sell for as long as the price remains below it. Investors who employ technical analysis find moving averages useful and observe the price in relation to make investment decisions. Moving averages (MA) are the most popular indicator for trading trends.
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