The “Double EMA” trading strategy

Moving averages (or “movings”) are a basic indicator of market technical analysis. There are many varieties of them. For example, there are more than 10 types on the Binomo trading platform. This article is a review of a trading strategy based on the use of two EMAs. This type of MA differs from conventional movings in that there is smoothing, which makes it possible to somewhat increase the accuracy of the signals.

The Moving Average type Exponential in comparison with a simple moving average is more sensitive to price fluctuations. This makes it possible to reduce lags by about 10%, which is especially noticeable during high volatility of the market and sharp price jumps. The EMA calculation formula works in such a way that the position of the indicator line is more affected by the most recent price formations on the chart.

 

Preliminary preparation

It is necessary to choose the asset, timeframe, and expiration time based on the time interval, etc. Also we need two EMAs with different periods. We will enter the market on the trading signals of these indicators in the form of the intersection of two lines.

Moving Average settings:

• slow line: period — 22, color — blue, type — Exponential;
• fast line: period — 8, color — red, type — Exponential.

The remaining parameters should be left at the default values.

 

Signal for options “Up”

The positions of the two Exponential Moving Average lines on the chart indicate which type of trend is currently active. If there is a red (fast) line on top, this signals an upward trend. When the price moves in the opposite direction then there will be a slow (blue) line on top, and the red one will be moving downwards. The distance between the EMAs shows the intensity of the discrepancy, which in turn indicates the market strength of the current trend.

 

 

The optimal entry point for the market is the moment the trend begins. At this time, there is an intersection of the EMA, when the slow moving breaks through the fast one from its position from below. At this point, you need to open a trade on an increase.

 

Signal for options “Down”

Entering the market with a trade on a decrease should be done at the very beginning of a downward trend. For this we will be helped by the EMA lines and their intersection when the fast red moving breaks through the slow one.

 

 

The terms for the expiration of options should be from 2 to 4 candles. For example, on a 15-second and 30-second chart, you can trade short-term fixed 1-minute contracts.

 

An example of trading on the “Double EMA”

We only publish on our site quality strategies, the effectiveness of which has been verified by us in practice. Therefore, specifically for this article, we opened one transaction according to the signals, screening the process in real time.

We had $275 in our account, which was a real account, rather than a training (demo) one. At the time of writing this article, it was a weekend, so only one asset was available – CRYPTO IDX. This is what we’ll trade on.

 

 

We configure the trading terminal according to the requirements of the strategy. We wait for the signal. At the moment of the intersection of the lines, signaling the beginning of a downward trend, we buy an option “Down” for $10. The above picture is taken about a minute after the purchase, when there were 27 seconds left before expiration. That’s why the chart clearly shows the behavior of the price after the opening of the transaction.

 

 

The trend turned out to be the standard length for this asset, so we got our profit on the trade, which was almost $8. CRYPTO IDX is an asset with a fairly high yield (usually 79% or higher). Therefore, you can make a profit on it even on weekends when the interbank foreign exchange market is not open.

 

Money management and other nuances

Money management is a set of capital management rules that allow the trader to retain their investment when trading on short-term financial markets, which is associated with high risks. This is a whole system which must be mastered by all novice traders. However, the basic principles need to be observed immediately. First and foremost, money management prohibits the trading of more than 4-5% of the account.

Regarding the accuracy of signals. There is no strategy that results in 100% or even 90% reliable signals. Even with the best solutions on the market, this figure reaches a maximum of 75%. Therefore, the inherent quality of a successful trader is the ability to “feel” the market, catching signs that aren’t visible at first glance, for example, the combination of EMA signals with others, for example, with candlestick patterns.

One of these nuances is the level of market volatility. The greater the distance between movings before the reversal of the trend and entering the market, the higher the probability that the option will close with a profit.

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“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”