EMA 25-50 Trading System (Detailed)
EMA 25-50 Trading System (Detailed) - by E. Lang | Comment
Attention: Here is a system so generously donated by E. Lang. Be sure that you thoroughly understand how the system works before implementing. Always test any new strategy with a demo trading account before using it on your real money account.
It is assumed that you already have a thorough knowledge of trader terminology. If you do not, there are many free sites that will teach you the basics of Forex trading. It is highly recommended that you brush up on your education before tackling the use of systems.
Happy trading!
- Deanith, Administrator
The Day Forex System Blog
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Step1: Here is the set-up:
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Step 2: Entry Criteria
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Step 3: Entry Criteria | Buy Example
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Step 4: Entry Criteria | Sell Example
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Step 5: Stop Losses & Management
Stop Losses in this system are relatively easy to set.
From the point of entry add 1 x’s of 2 x’s the current ATR value.
Trade management is extremely important with this system. The initial profit taking target is between 50 and 100 pips. Regardless of what position you have open my advice is to close out 50% of your profits at your first target and immediately move your SL to B/E. This can sometimes lead to your position being closed out when the price retraces, leaving you out of a trade and possibly missing a greater profit, but it is the safer way to trade.
Another risk management option is minimizing your SL by 50% once you hit your initial target of 50 - 100 pips. It all depends on your risk tolerance and the amount of lots you use.
The remainder of the position is left to trail for profits. It is closed out either at historical S/R or at the cross/touching off Stochastics on the H4 (4 hour) chart. We do NOT trade on any time frame smaller than the 4 hour chart.
I recommend you move your SL from B/E to newly created S/R every time the price moves in your direction so you can better trail it.
The important thing is to take poofit at 50 - 100 pips after your entry on the candle open. Fake outs do occur, but when we take profit at 50 - 100 and move to B/E we are safe even at a full price reverse.
This is an H4 system, trades will occur very often. You can expect 100 to +1000 pips.
I recommend you trade GBP/JPY or EUR/JPY due to their volatility and NZD/USD because it trends steadily.
Step 6: Exit Optimization | Theory
In many instances you will be forced to sacrifice more pips for the safer approach to trading. I’ve implemented the use of the Stochastic indicator when trading 25/50 so you can pinpoint an area on the chart which will leave you exiting your remaining position a level you normally wouldn’t be able to capitalize on due to risk management.
Every time the Stochastic indicator begins touching of crossing you should consider exiting as the price may be pulling back. Naturally, with this also occurs the occasion in which the price pulls back, but does not close under the 50 EMA, leaving you out of a trade and probably having you wish you never exited in the first place. To capitalize on the bounce and minimize losing too many pips we thake advantage of the 25 EMA.
When price corrects, it will normally test the 50 EMA. If it does not break, you will be looking at re-enter, however and immediate re-entry of an entry off a close/open after the bounce from 50 may often be false. In order to reduce this, we wait for price to close above 25 EMA before attempting another Long in the same direction of our previous trade.
I recommend having a crossing or a touching of the Stochastic Indicator complement the open/close above 25 EMA when considering a re-entry. Yes, pips will be missed, but it is the least dangerous approach to the problem.
On the next picture you will see (in order of appearance) an Entry, a First Exit Optimization area, a trade re-entry based on 25 EMA and another Ex. Op. area.
Step 7: Exit Optimization | Example
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Step 8: Manual Trailing
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I am currently testing the system on lower frames and trying to determine optimal SL for such charts. So i’ve only recommended it be traded on H4 for the time being.
I am confident however that experienced traders will be able to make wonders on lower time frames just as good.
As it is said: “Unless a man undertakes more than he possibly can do, he will never do all that he can.”
Regards,
E. Lang
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