Trend trading with 55EMAs on the Daily Chart

Hello fellow factory members -

This thread will follow a method of identifying entry points on the daily charts in order to capture medium-term trends. It is based on price breakouts of the daily range within the 55 EMA High and the 55 EMA Low, as price tends to range when crossing these levels on the daily chart (or sometimes range very briefly and 'neatly', usually indicating a strong continuation).

Indicators:

For the initial alert:

55 EMA (daily, high)
55 EMA (daily, low)

For determining exits and stops:

14-day Average Direction Index (ADX)
14-day Average True Range (ATR)

For re-entering trending markets:

10-day EMA

For determining stops: fib levels, round numbers, the average daily range - stop loss should be moved into profit (if applicable) once a day only, ideally as soon as the last daily candle is printed.

This strategy is applicable to any cross, and is to an extent based on the idea that hedge funds and currency managers work on this time scale. (50 to 60 days is also arguably a significant market cycle.) These are very basic and popular ways of looking at the market, and so it is my intention to follow this strategy closely, making live trades and keeping specific data around the behaviour of the market between the 55 daily moving averages, and basically honing in on any aspect of the strategy I - or you - can think of, without changing any of the basic indicators.

Very simply, the entry signal is a daily close outside the 55 EMA high/low channel, in the direction of the breakout. There is nothing wrong with taking some time after this event to assess your entry point closely and using your own discretion, as long as it is within the next trading day.

This is my one and only daily-chart/trend trading strategy at the moment and I'm hoping to build up lots of data I can share.

A word of warning: This is a trend-trading strategy and as such, it is probable to experience sizable draw-downs. It is important to calculate your stop-loss ahead of time (that is, in fact, integral to the strategy), and to calculate your lot-sizing based on the distance between the stop order and the entry point. The total possible loss on any one trade should absolutely not be more than 1% of your account; I myself am targeting 0.5%. The idea, like any trading strategy, it cut your losses short and let the winners ride - it's just that this is on a larger scale. You should ordinarily be prepared to set a stop loss not less than the Average Daily Range, i.e. the ATR(14) on the daily chart.

When price hits the daily 55 EMA, it can sometimes range for five or six days - this in not a strategy for the impatient. Rather, it's important to monitor these signals across as many markets as possible, and to follow closely those markets which show potential.

In the two current charts below: the first is an example of a perfect winning trade on the NZDJPY. The second chart shows the EURAUD currently ranging between the two EMA's. The descent back to the range has been sharper than usual, but a daily close below the 55D-EMA would still be a signal to look for a sell.

i have been using the 55 ema on my daily charts for a long time. good in identifying trends.

post some live trades please.

what settings are you using on the ATR and ADX, and what is your method of determining tp and stops using these.

i assume the ema settings are to the close. the 10 ema re-entry i gather is above buy, below sell.

do share your 55 ema trading method, can?
believe your vast trading expereince will benefit the young traders like me,

Hi Whatfx,
Thanks for your question. The main point of the charting set-up is to have the 55 daily EMA set to the high and the low. The 10 EMA (close) is just a simple and reliable re-entry indicator when a daily market is trending strongly.

The ATR and the ADX are both set to the standard 14 periods. The method of determining stops is the key question to the long-term success of this strategy.

To some extent, you will need to rely on your experience of the market and your own skills as a day-trader to find the best (i.e. lowest-risk) entry-point after the basic signal is triggered. A rough guide is always the value of the ATR daily range. But it's better that you find a stop-level based on recent price action slightly beyond that point, and size the trade accordingly.

It seems that many consolidations around the 55 daily moving average happen around key longer-term market price-points. Use that to your advantage!

The 55 EMA is my favorite. Throw it on any of your charts and you'll be amazed.

the ATR and ADX settings - what i meant is any fixed minimum/maximum settings, high/low/close, etc ? any levels to be entered.

i agree that one has to use thier own experience to deal with stops/tp levels.

"the ATR and ADX settings - what i meant is any fixed minimum/maximum settings, high/low/close, etc ? any levels to be entered.

i agree that one has to use thier own experience to deal with stops/tp levels."

There are no special levels on these indicators that I'm aware of, but the turning-points of these indicators can be very helpful.

Logically, I would expect that on a "text-book" trade, the average daily range should be about the same number as the distance between the two 55 EMA's, and it should turn at this area and increase or decrease depending on the velocity of the forming trend.

With regard to the ADX, it's obviously good to see a crossover of the DI's, and, again, a reversal of the ADX direction is the strong exit signal.

what happened to this thread ?

drdiscretion, do post some trade examples.

Moving average trading system is not good enough in sideways trend like this


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naked trading

Because of sideways markets i use two orders (or partial close one order ) first TP= SL, second TP > 3*SL, and then when the trend is established i reenter orders again with TP>3*SL.