Good morning investors/traders!! I want to talk about a very efficient trading tool that, maybe you use, or, maybe you don’t. I am talking about EMA’s, AKA, Estimated Moving Averages! Many traders I chat with also use (VWAP) or Volume Weighted Average Price.
Now, both are effective if you understand how or why you use it! For this article I want to share with you how I use the EMA’s, more specifically the 50 EMA, and the 9 EMA.
One of the first things we need to be able to spot is the TREND! In trending markets the EMA’s are crucial for executing low risk entries. While I am trading, I want to take the time to understand the relevant news for the day, the daily chart, and the previous few session. In the futures market, if there is solid fundamentals and market direction, then I look for the TREND. Depending on which way the markets is heading I begin to look at where the price action is related to the EMA’s!
In the example above we can see a very clear uptrend in the SP 500 future (/ES). If we look closer at the trend we can start to see the relationship of the consolidations and the EMA’s. Even better, we can possibly find areas that could be solid entry points!
All along that trend we can see that most of the pullbacks find themselves in very close relation to the 9 EMA. There is also a very peculiar relationship between the 50 EMA and the 9 EMA at the beginning of the trend! Let’s look at some examples.
The next time you decide to do some chart research, pull up a chart and add both the 50 EMA and the 9 EMA and try to find these points. Typically, these types of setups are in higher volume periods of the trading day. They don’t always workout, but; the more you understand moving markets, the better off you will be at spotting these types of trades!
Something else to note is that the EMA’s will be just behind the price action so you will want to be patient and practice your entries off the 9 in a simulated account!
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