EMA crossover can be used to decide to execute trades is one of the most basic and simple strategies in Forex. Let’s look at the following strategy that uses the Exponential Moving Average (EMA) crossover.
Currency Pair: Any
Chart: 1 hour (H1) or 15 Minutes (15M)
Indicators: EMA 10, EMA 25, EMA 50
When the 10 EMA crosses the 25 EMA and continues through thxe 50 EMA, a BUY / SELL signal is generated in the direction the 10 EMA is moving.
For example, if the indicator is moving down and crosses the other two indicators (25 EMA and 50 EMA) from top to bottom, a SELL signal is generated.
If the indicator is moving from the bottom up and crosses the indicators from the bottom up, it would be generating a BUY signal.
Always wait for the current candle to complete to confirm the signal. This to avoid false alarms.
Option 1: Exit when the 10 EMA crosses the 25 EMA again, this time in the opposite direction to that used for entry.
Option 2: You can also wait for the EMA 10 to cross or slightly touch the EMA 50.
It is very easy to use and provides excellent results in conditions in which the market is trending strongly up or down. Almost all trading platforms support the EMA indicators by default and usually free of charge.
Like most indicators, EMAs are lagging, this means that it indicates the past rather than the future, and when the market is not trending clearly, it can generate many wrong signals. It is not recommended to use in these types of periods.
Under volatile market conditions this strategy starts to lack of success. A good way to identify when to use it is to check if it has been matching successfully in the immediate past.