Is the 50 EMA truly a SR or just a visual help? | Forex Factory

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Is the 50 EMA truly a SR or just a visual help?

  • #1
  • First Post: Jun 23, 2018 10:05pm Jun 23, 2018 10:05pm
I've been using the 50 EMA in my own strategy for quiet some time now as it has been holding very often and it has proven to me that it is indeed a great tool to have. However, it makes me think that the 50 EMA is not really a dynamique SR as people tend to say but just very often coincides with a support/resistance level in the past (or pivot, trendline, round number, etc. you name it), thus, making the 50 EMA just a visual help to "expect" a reaction. I am also brave enough to call the 50 EMA just an illusion?

What is your opinion on this?

I've seen so many examples that pure price action trading can be very profitable and is the right path to go and that the 50 EMA is just a "newbie-friendly" helper?
  • #2
  • Jun 25, 2018 9:24pm Jun 25, 2018 9:24pm
Good question! IMO the best way to find out is backtesting with an Expert Advisor which Moving Average is respected the most (matches best with price on a specific currency pair).

Tips:
- Regarding Stoploss and TakeProfit, I suggest a number bigger than 10 pips (because lower than 10 pips gives more randomness, quote manipulation and is less steered by the economic market). Recommended between 10 and 500 pips.
- disable genetic algorithm
- IMO you could try optimizing MA period 3, 4, 5... up until 200 to check which Moving Average has the most confluence (say: price confirmation).

Maybe anyone would be helpful in uploading such EA for us to test it out. What is your opinion, is this idea effective?
Join our skype group.
  • #3
  • Jun 25, 2018 9:47pm Jun 25, 2018 9:47pm
As they say: Any indicator is only worth using if you know how to read it. This takes time. In my case, I started with moving averages. I don't care what anyone else says, my time at the screen watching has proven that something big - banks or big players - move the markets around the major moving averages (but not always!).

I don't use the moving averages as a signal. I use them because I cannot see the price action or I'm not certain what's going on. I've come to learn to read them well. For example, if each time frame is not congruent with the trends pursuant to their respective moving averages, something is usually about to change.

Sometimes price is schizophrenic (no offense to anyone) and the price is not clear, but I'm certain of my directional bias. I just don't know where to get in. I can and will use a candle close above or below the 200ma and 50ma as my signal.

Over time, this trick lead me to watch the market in such a way that there is a huge indication given to me by the 50 ma. This applies to the dollar index on the 15 minute time frame. The time frame I am trading from doesn't matter. If price of the dollar index is hovering around the 50 moving average on the 15 minute time frame the rule is: STAY OUT. I read this as: There's nothing moving the dollar and it is either waiting on news or volume. Ergo, there is no directional confirmation and if I enter, it will likely go against me. This NEVER fails me, but I do fail to heed the rule and look before entering a trade.

Of course, if you're trading intra day swings, daily or weekly swings where you set and forget, this issue isn't as important. I play very tight entries and this rule has given me motivation to be patient and it pays off well.

The moving averages on the higher time frames - weekly and monthly - are HUGE. It isn't necessary to use them, but by not using them on these time frames, you're missing an important element. On those lower time frames I don't think the 50, 100 moving averages are anywhere near as important to consider them support and resistance though if you watch you will see traders get out of their trades at these points. The 200 moving average isn't crucial on all time frames, but many traders can and do use them constantly. I always have the 200 moving average and the 50 moving average on all my charts. I've learned to trade without them on certain setups, but I constantly find myself adding them back. When I do, I often seen S&R guys going against the prevailing trend in accordance to the moving averages. Maybe I'm just getting lucky. Maybe it's my trading abilities relative to something else rather than the moving averages, I'm not sure. Time will tell. I look forward to the day I won't need them but on occasion when looking at the higher time frames.

If you're comfortable with the 50ma (or anything else), use it. Don't ever veer from it. If you veer, you may never know if it works for you. Do your own thing. If you're going to do someone else's trade setup (which is good if you're a newb), then stick with their plan exactly until you know it well. Otherwise, understand you're catering to your very own trading abilities and need to learn to honor yourself rightly as long as you're willing to learn from your mistakes.

Keep pluggin!
  • #4
  • Jun 26, 2018 1:46am Jun 26, 2018 1:46am
Quoting 2dollardog
As they say: Any indicator is only worth using if you know how to read it. This takes time. In my case, I started with moving averages. I don't care what anyone else says, my time at the screen watching has proven that something big - banks or big players - move the markets around the major moving averages (but not always!). I don't use the moving averages as a signal. I use them because I cannot see the price action or I'm not certain what's going on. I've come to learn to read them well. For example, if each time frame is not congruent with the...
I am not really sure if I missed your point that answers my question in the first post or not but despite that, your insight is awesome!

"I don't use the moving averages as a signal. I use them because I cannot see the price action or I'm not certain what's going on." - this is SO me hahaha. Since I suck at reading price action, the MA and other indicators help me reveal what I don't see most of the time. Not everything, but enough information to give me an edge.

"If price of the dollar index is hovering around the 50 moving average on the 15 minute time frame the rule is: STAY OUT" - out of curiosity: if I trade the lower TFs, would that help me? Also, which index are you using for MT4? Is this a specific indicator?

"If you're comfortable with the 50ma (or anything else), use it. Don't ever veer from it" - great, thanks. I love the 50 EMA and will continue using it :-)

Thanks again for your insight and informative post!!
  • #5
  • Edited 4:27am Jun 26, 2018 4:13am | Edited 4:27am
Quoting RaysJourney
I've been using the 50 EMA in my own strategy for quiet some time now as it has been holding very often and it has proven to me that it is indeed a great tool to have. However, it makes me think that the 50 EMA is not really a dynamique SR as people tend to say but just very often coincides with a support/resistance level in the past (or pivot, trendline, round number, etc. you name it), thus, making the 50 EMA just a visual help to "expect" a reaction. I am also brave enough to call the 50 EMA just an illusion? What is your opinion on this? I've...
Hi when talking about ma's than using 50ema might be helpful to some people depending on how they use it ofcourse.
Some of them use 200 ema to know the long term or overall direction of the trend and 50 ema to know the current trend or short term trend.
And as you might be already aware that almost all of theForex trading indicators are made based on the formula of the calculations of moving averages.

There are some other type of moving averages that you MUST TRY to use it while analysing the markets to give you better results while trading
Like the fractal moving average.
Some people use fibonacci numbers in moving averages such as 21,34,55.

There are other profitable and custom type of moving averages which use different kind of equations to calculate the prices which most people dont even know yet.
No one ever Discovered anything new by colouring inside the lines.
  • #6
  • Jun 26, 2018 5:54am Jun 26, 2018 5:54am
Quoting RaysJourney
{quote} I am not really sure if I missed your point that answers my question in the first post or not but despite that, your insight is awesome! "I don't use the moving averages as a signal. I use them because I cannot see the price action or I'm not certain what's going on." - this is SO me hahaha. Since I suck at reading price action, the MA and other indicators help me reveal what I don't see most of the time. Not everything, but enough information to give me an edge. "If price of the dollar index is hovering around the 50 moving average on the...
I think I made an inference that moving averages are mostly visual aids, but many traders do use them for support and resistance. It's like anything else, if you're slick at using them they work.

If you use the lower time frames it would be helpful to watch for that hovering. Exception: If you have a specific trade setup based on other high probability factors it may not matter, because your high probabiity selection might naturally avoid this price actions, e.g. I enter at lower time frames, so yeah I watch for it. If you're wondering what this hovering behavior looks like, watch it beginning about an hour before any major news event for GBP. It's like the DXY waits for the pound to move. I've come to understand that I am simply following the smart money. If they're not moving it, I don't enter.

I have the DXY via tradingview on one screen while I trade the cross pair on the MT4 platform on another.
  • #7
  • Jun 26, 2018 5:59am Jun 26, 2018 5:59am
Quoting Hdhorda4
{quote} Hi when talking about ma's than using 50ema might be helpful to some people depending on how they use it ofcourse. Some of them use 200 ema to know the long term or overall direction of the trend and 50 ema to know the current trend or short term trend. And as you might be already aware that almost all of theForex trading indicators are made based on the formula of the calculations of moving averages. There are some other type of moving averages that you MUST TRY to use it while analysing the markets to give you better results while trading...

Thank you for this. I will look into it further. Do you mind listing any other ones you might consider important as well?

The fibs onthe ma .. that makes sense. I notice that many of the higher tf moving averages will become confluent with their respective fibonaci retracement and extension levels. Very often, these also coincide with their respective support and resistance, too. It's actually sort of creepy when you think about it. How in the world, right? When they all line up, I don't ignore it.

I'm real sharp at reading the stochastic (MTF) indicator, too, but I don't know much about its base calculations or that it is related. Pretty cool and it really does make sense. I mean, there's not much more we can do but make decisions derived from past behavior.
  • #8
  • Jun 26, 2018 6:25am Jun 26, 2018 6:25am
Quoting 2dollardog
{quote} Thank you for this. I will look into it further. Do you mind listing any other ones you might consider important as well? The fibs onthe ma .. that makes sense. I notice that many of the higher tf moving averages will become confluent with their respective fibonaci retracement and extension levels. Very often, these also coincide with their respective support and resistance, too. It's actually sort of creepy when you think about it. How in the world, right? When they all line up, I don't ignore it. I'm real sharp at reading the stochastic...
Yes applying fibonacci moving average makes sense because some of the crowd is also reacting to the fibonacci equations and numbers so there is some connection there as well.

Also fibonacci numbers are important in sacred geometry.

Drag 3 moving average in a chart with a period number 21 and choose weighted in all of them and apply the first one as high second as low and third as close.

as you can see in this pic which i made just now.After applying it your chart should look like this pic below.

Now talking about other moving averages you can try adaptive kaufman moving average,fractal moving average and play with settings like weighted,expotential,typical etc.

I mean, there's not much more we can do but make decisions derived from past behavior.

Yes we can but unfortunately most people are following wrong path thats the main problem.
Attached Image (click to enlarge)
Click to Enlarge Name: GBPUSDH1.png Size: 61 KB
No one ever Discovered anything new by colouring inside the lines.
  • #9
  • Jun 26, 2018 7:47pm Jun 26, 2018 7:47pm
Quoting Hdhorda4
{quote} Yes applying fibonacci moving average makes sense because some of the crowd is also reacting to the fibonacci equations and numbers so there is some connection there as well. Also fibonacci numbers are important in sacred geometry. Drag 3 moving average in a chart with a period number 21 and choose weighted in all of them and apply the first one as high second as low and third as close. as you can see in this pic which i made just now.After applying it your chart should look like this pic below. Now talking about other moving averages you...

Thank you for kindly responding. Your effort is not wasted. When the house calmed down after the guests left, I zoomed in on your chart. It subtly reminds me of bollinger bands. I like the refined behavior, especially those that include the pinbars. I'd like to see that real time soon. I definitely will study up on these and follow through with questions later. I believe I'm ready to expand my knowledge base without impacting my present perceptions on price.
  • #10
  • Jun 27, 2018 1:46am Jun 27, 2018 1:46am
Quoting dkrock
{quote} I consider stochastic worthless, and will explain why. I will also provide you with some variations in case you don't believe me and wish to continue to try to use it. 1. Stochastic has a slowing factor on it, so if you change that value to 1, you will get closer to the price action. You will notice that whatever period you use for %K lines up to the corresponding moving average. For instance, if you use 20 as %K, then when price crosses the 20 SMA, it will also cross the 50 level line of the stochastic. 2. Knowing the 50 line corresponds...

Hmm very interesting observation or may I almost call it a fact? Nonethless, I will experiment with the stochastics and see what I can come up with as I use it as well. Thank you for your insights here!
  • #11
  • Jun 27, 2018 2:19am Jun 27, 2018 2:19am
Quoting dkrock
In the market, if you average buyers against sellers, then when price is above that average you would buy, below it you would sell.
Quoting dkrock
If you want to use moving averages effectively, find the one that divides buying from selling and then convert it to multiple time frames. Then, you would have a tool.
Sir, you made some very interesting statements. But can you please give some more details on HOW you do this when the data that comes into the trading platform is OHLC and ticks?
  • #12
  • Last Post: Jun 27, 2018 1:10pm Jun 27, 2018 1:10pm
Quoting dkrock
{quote} How do you know how much rice to eat when each one is a single grain? How do you know how much rain has fallen when each part is a drop? How do you know you will go 50 miles in an hour if you drive 50 mph? Funny that you asked for details about your details, lol. You need a larger sample size than a tick and a candle to determine averages. Probability is best determined from an average of averages, not the individual details. https://www.forexfactory.com/showthread.php?t=481007
Well, your answer didn't help clarify how you do it. But i apreciate your answer, will look into the link you posted.

Cheers.
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