Understanding EMA lines is extremely important for a trader as they tell you the bias, what the trend is at that time and which direction you should take a position.
I have recently done three backtests and all three were successful. You can check them in the images. To understand the EMA trading strategy, read this content until the end which will definitely be very useful and beneficial for you.
I have done three backtests and besides these there are many more backtests that you can check yourself. These three backtests are the ones that were 100% successful. Let’s understand the first image.
In this, what happened is that if you look at the starting candles, the candles were below the EMA 200 which was showing that Bitcoin was in bearish mode.
But as soon as the next two big candles became green the price went above the EMA 200. After staying above this line for some time we checked that the golden and green lines, which are our EMA 50 and 100 crossed over.
Every crossover gives more accuracy that the bias has become strongly bullish or strongly bearish.
Now because EMA 50 and 100 have crossed EMA 200 toward the upside, this goes into an extreme bullish situation where you will only look for long positions.
Now because the trend has become bullish what will our strategy be?
When the candle touches the golden line there we will place our first layer which will be a small amount of USDT. We will place the second layer at our green EMA, which is the EMA 100. And the third one is EMA 200. After that our stop loss will be set. We will set the stop loss by looking at the swing low and we will set the TP accordingly.
Now you can see its example: in this first image after the crossover the candles touched the yellow line then touched the green line and then gave a very good recovery which is OUR profit zone.
In the 2nd images which is our backtest number 2, what happened is that before this, the market was bullish. The candles were trading above all three EMA lines. But three to four huge red candles changed its structure.
We checked that the EMA 200 line moved upward and the golden and green lines crossed it and moved toward the downside. So this is a sign that now the bias has changed and it turns bearish.
Now after the bias changes what is our job? We will start taking short positions from there. As I explained when the crossover is toward the upside it indicates a bullish signal and when it is toward the downside it indicates a bearish signal.
We have to take a short position and look for good trades. You can see that as I explained in the strategy your first layer will be at the golden line, the second layer will be at the green line and the third layer will be at EMA 200.
You can see that the candles touched all three lines and then again took a sharp dip which is our another good profit.
This is the second backtest which was extremely good and successful.
Let’s take another example in the third image which is our backtest number three and this happened after a recent pump.
You can see that a recent pump took our EMA 50 and 100 above the 200 and all three EMA lines are below the candles which is proof that the market has changed into a strong bias structure.
Now what do we have to do? We will place our first trade on the yellow line, our second layer on the green line and our third layer on the purple line. After that, there is a chance of a beautiful recovery.
But it is also important that these trades are not successful every time. That is why the stop loss is made so that it cuts your losses and you keep getting another opportunity.
So now I am examining this trade and will see how it behaves because I have taken the screenshot of very recent candles.
One more thing to keep in mind is that on the 1hour time frame, these EMAs work very well because there is less noise on this time frame and the accuracy is higher.
And another thing I think is important to say is that whenever the EMA lines become wide, in that situation your profit and risk-to-reward ratio will also increase where you can get good rewards so your stop loss can also be bigger.
And whenever the EMA lines become narrow, at that time your risk-to-reward ratio is also lower because if the reward is lower, the stop loss will also be smaller.
It is very important to keep these things in mind.
This is the EMA strategy in trading which is quite successful and at the very least, you will get an idea of what the bias is at that time.
Remember that whenever the candles are above the EMA lines you have to keep a long position in mind and whenever the candles are below the EMA lines you have to keep a short position in mind.
I hope you guys will like this post and is interesting as well. If you find it informative then dont forget to give me a support. Share you reviews in the comment section below. Thank you all for your time reading the content.
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| EDITING TOOL | CANVA |
