First off this is part of my system, however it is a very important part. It works on all the major pairs and works on the 5 time frames I use (I'll explain). It is NOT a holy grail. I know there is no such thing. However that being said, I have NEVER seen anyone mention this and I have proven to myself over time that it happens in all market situations, with all majors and all 5 time frames I use. It is the most accurate support and resistance I have found.
Bare with me because many of you will think this doesn’t work at all when I mention it. I challenge you to look at it and prove this does not happen. It involves 3 EMA’s but does not use the crossing of them as a signal. I have found out that this does not work most of the time.
So here it is. EMA 1=25. EMA 2=150. EMA 3=365. The 5 time frames I use are the Weekly; Daily; 4 HR; 1 HR; and the 15M. Plot them on your charts for the Majors. Remember, this is not using the EMA’s crossing as a signal. The EMA’s are resistance lines. That’s it. When price approaches any of these 3 EMA’s on any of the 5 time frames on any of the major pairs price resists in most cases (heavy trading like NFP, Interest rate decisions, etc will often resist the smaller EMA's).
Treat them as any other resistance or support. Doesn’t mean price isn’t going to go past, but price will resist. The higher the EMA, and the higher the time frame, the bigger the resistance will usually be. What I mean by that is the 25 EMA on the 15M chart is not as big of a resistance as the 25 EMA on the hour chart most of the time. The 365 EMA is usually a bigger resistance on the 1HR chart than the 25 EMA, but usually isn’t as big of a resistance as the 365EMA on the Daily chart as price has been showing on the Cable.
To give a clearer picture of how to use this, let’s say you get into a trade on the Cable. Price starts to get on a nice run but then starts to hesitate at a point. If you notice you are approaching one of the 3 EMAs on any of the time charts for that pair you will want to watch very closely and even take some of the profit. However if you are approaching say the 365 EMA on the 1H chart you would be wise to take all of the profit and then wait and see how price reacts to that resistance area.
Remember, this is part of a system not the entire system. I use a couple of different techniques including recent highs and lows (another support and resistance technique), RSI (not used as overbought/oversold as this is wrong. That is another post, but RSI is actually showing trend not OB/OS. That is a misconception), price action, and the “natural” support and resistance areas called “century marks”.
Century marks are for example Cable at 1.3500, 1.3600, etc. Every even 100 PIPS. An example for USD/JPY would be 91.00, 92.00 etc. Every 100 PIP mark. That is another interesting play in itself so if you are interested in that feel free to ask because there are some rules on how to trade that by itself.
The important thing about a system is to get at least 2 things telling you the same thing. The more the better, however the caveat to that is you don’t want too many things or else you will never make a trade because you will be confused and get too many conflicting signals.
Look at the 3 EMAs. Plot them on your charts. Watch how price reacts at those areas. I have found it to be the most accurate support and resistance areas.
I know many of you will say that EMA’s are lagging indicators and don’t work. Yes it is true they are a lagging indicator. But I am telling you, the big boys are using these 3 EMA’s on all of the Majors on at least the 5 time frames I mention because price hesitates at those areas practically every time.
Only in major moves like NFP, Interest Rate decisions, etc will price sometimes plow through some of the EMA’s. However last week there was a major and sudden severe move on the Cable. Price went down 160 PIPs in just a few seconds because of an unexpected negative posting of a UK report. Price got to the 365 EMA on I believe it was the 15 minute chart and price shot back up 100 PIPs instantly. Seriously, it was instantaneously. It took about 20 minutes to get back to the 365 EMA and price steadied there and then hovered as the close of the UK market was near. The US market tried again and then the Cable went back up. That is just one example but a very recent one you can see for yourself.
Anyway, this doesn’t fully explain it so feel free to ask questions. Also feel free to challenge it. I love it when people challenge things, just make a good argument.
Bare with me because many of you will think this doesn’t work at all when I mention it. I challenge you to look at it and prove this does not happen. It involves 3 EMA’s but does not use the crossing of them as a signal. I have found out that this does not work most of the time.
So here it is. EMA 1=25. EMA 2=150. EMA 3=365. The 5 time frames I use are the Weekly; Daily; 4 HR; 1 HR; and the 15M. Plot them on your charts for the Majors. Remember, this is not using the EMA’s crossing as a signal. The EMA’s are resistance lines. That’s it. When price approaches any of these 3 EMA’s on any of the 5 time frames on any of the major pairs price resists in most cases (heavy trading like NFP, Interest rate decisions, etc will often resist the smaller EMA's).
Treat them as any other resistance or support. Doesn’t mean price isn’t going to go past, but price will resist. The higher the EMA, and the higher the time frame, the bigger the resistance will usually be. What I mean by that is the 25 EMA on the 15M chart is not as big of a resistance as the 25 EMA on the hour chart most of the time. The 365 EMA is usually a bigger resistance on the 1HR chart than the 25 EMA, but usually isn’t as big of a resistance as the 365EMA on the Daily chart as price has been showing on the Cable.
To give a clearer picture of how to use this, let’s say you get into a trade on the Cable. Price starts to get on a nice run but then starts to hesitate at a point. If you notice you are approaching one of the 3 EMAs on any of the time charts for that pair you will want to watch very closely and even take some of the profit. However if you are approaching say the 365 EMA on the 1H chart you would be wise to take all of the profit and then wait and see how price reacts to that resistance area.
Remember, this is part of a system not the entire system. I use a couple of different techniques including recent highs and lows (another support and resistance technique), RSI (not used as overbought/oversold as this is wrong. That is another post, but RSI is actually showing trend not OB/OS. That is a misconception), price action, and the “natural” support and resistance areas called “century marks”.
Century marks are for example Cable at 1.3500, 1.3600, etc. Every even 100 PIPS. An example for USD/JPY would be 91.00, 92.00 etc. Every 100 PIP mark. That is another interesting play in itself so if you are interested in that feel free to ask because there are some rules on how to trade that by itself.
The important thing about a system is to get at least 2 things telling you the same thing. The more the better, however the caveat to that is you don’t want too many things or else you will never make a trade because you will be confused and get too many conflicting signals.
Look at the 3 EMAs. Plot them on your charts. Watch how price reacts at those areas. I have found it to be the most accurate support and resistance areas.
I know many of you will say that EMA’s are lagging indicators and don’t work. Yes it is true they are a lagging indicator. But I am telling you, the big boys are using these 3 EMA’s on all of the Majors on at least the 5 time frames I mention because price hesitates at those areas practically every time.
Only in major moves like NFP, Interest Rate decisions, etc will price sometimes plow through some of the EMA’s. However last week there was a major and sudden severe move on the Cable. Price went down 160 PIPs in just a few seconds because of an unexpected negative posting of a UK report. Price got to the 365 EMA on I believe it was the 15 minute chart and price shot back up 100 PIPs instantly. Seriously, it was instantaneously. It took about 20 minutes to get back to the 365 EMA and price steadied there and then hovered as the close of the UK market was near. The US market tried again and then the Cable went back up. That is just one example but a very recent one you can see for yourself.
Anyway, this doesn’t fully explain it so feel free to ask questions. Also feel free to challenge it. I love it when people challenge things, just make a good argument.