EMA Crossover Strategy: What is and How to Swing Trade It

Swing traders use many indicators to help them assess potential trade opportunities. Moving averages – both Simple and Exponential – are among the most popular and effective when developing a trading strategy.

What are Simple and Exponential Moving Averages?

In essence, a Simple Moving Average (SMA) is an expression of the average closing price of a financial instrument over a particular number of periods. Any number of time periods can be used, but the 5, 10, 20, 50, 100, and 200, are among the most popular.

The Theory of the EMA Crossover Strategy

When a shorter-term moving average line crosses a longer-term line, it may be an indication that an existing trend is accelerating or that it is losing momentum or about to reverse.

How to Trade the Moving Average Crossover

In the example below, taken from the EUR/USD weekly chart, we see the 20 EMA making an upward cross of the 50 EMA, indicating a strengthening uptrend after a bull pennant pattern had formed.

How to Use Candlesticks, Support and Resistance for Confirmation

Candlesticks such as hammers and inverted hammers are also good signal candles. But we should always wait for confirmation from the next candle before entering the trade.

Ideally, we should also look to trade only those crossovers that form at or near areas of horizontal support or resistance.

Risk Management and Stop-Losses

Finally, as with all swing trading strategies, sound risk management is crucial to long-term profitability. This means using correct position sizing and appropriate stop-losses. And in the context of the moving average crossover, there are various possible approaches.

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