ES Emini Day Trading: Exponential Moving Averages vs Simple Moving Averages

December 18, 2009 · Posted in Currency Trading · Comments Off 

Moving averages are an integral part of most day traders indicator arsenal, and getting two traders to agree on which indicator is the best, or which configuration yields superior results is an argument that will rage on forever.  There is simply no agreement as to exactly what works best-and that is as it should be, because no two traders trade with same mind set and personality.

In the world of moving averages there are two contenders for consideration.  The diminutive simple moving average (SMA) and the more complicated exponential moving average (EMA).  Because the EMA has a more sophisticated method of calculation, many consider it to be the superior of the two averages, but that would be jumping to unfounded conclusions.

The SMA is a basic arithmetic mean: you add together the closing prices from the last 10 periods then divide the product by 10.  As I said, the result is a simple arithmetic mean.  Pretty simple?  Too simple for some people, especially those who tend to associate complexity with efficiency.

Complexity does sometimes yield superior results, but that is not always the case.

EMA’s are really not that much more difficult to calculate.  The formula is simply 2 (n+1), and the result is added to the prior days exponential calculation.  With some simple deduction you will see that an EMA emphasizes the most recent days prices, or weights the most recent days prices more than prices early in the exponential sequence.  Since any moving average uses historical data, or data that has already occurred to calculate the average, any moving average can be considered a lagging indicator.   It should be obvious, then, that the purpose of the EMA is to “speed” up the lag factor that is inherent in all moving averages.

Do EMA’s really speed up the lag factor?

To a certain extent EMA make the lag factor in moving averages less distinct, but like all things, there is a cost.  EMA’s are notorious for causing a raft of early buy and sell signals,  as the last variables in the sequence overweight the average.  For that reason alone, I am not a huge fan EMA’s and prefer SMA’s.  Does that mean SMA’s are better than EMA’s? Not at all, all it means is that in my trading mentality I am far more comfortable with the results from an SMA than I am an EMA.

I always strike an 89 period SMA on my charts and watch the price action relative to the price action and the SMA.   If the price action in more than 3 or 4 points below the SMA(on the ES contract) I immediately decide that long trades are out of the question until the price action moves closer to the SMA, and visa versa on price action about the 89 period SMA.   I can also glean some nearly instant information regarding the trend of the market by looking at the slope of the 89 period SMA, and the sharper, or more pronounced the slope appears, the stronger the trend.

I also use a number of paired moving averages to back up some of my entry and exit points.  I generally use Fibonacci numbers starting with 5 and up to form my two moving average lines.  I find it best, on short term trading, to use to SMA’s that are within 15-20 points of each other.  I will leave to you to discover which set of moving averages intersect at point which best suit your trading style.

So we’ve talked a bit about moving averages today, and seen some applications for the SMA.  The EMA’s are also used by many traders and I would encourage you to explore the applications for this moving average.

I endorse a state of the art trading program for beginners at Trading Concepts, Inc It’s an awesome product that will have you well on your way to success. Plus, it has a money back guarantee…you have nothing to lose and thousands to gain.

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Effective Forex Strategies You Must Learn To Succeed

October 28, 2009 · Posted in Currency Trading · Comments Off 

Having solid forex strategies can greatly assure your success in your forex trading career A well produced forex strategy can greatly change your trading experience as it gives the trader a more proper direction on what to look out for and when to enter and exit a trade. This can definitely enhance your win loss ratio

When it gets to the developing of forex strategy, having one that is simple to follow and does not demands a long period of analysis can greatly enhance your winning ratio Simplified strategies have a greater chance of profiting than complex ones. If you are searching for a simple strategy to trade in, forex breakout is unquestionably one you will not want to miss. When trading forex breakout, you will be getting in a trade when the price move violently in a direction after a period of consolidation

When you are crafting a forex trading strategy, you must ensure that it consists of a combination of long and short term trading opportunity. This is because short term trade lets you to see profit quick but not more and long term trade permits you to see profit slow but more profit. Thus having a strategy that can let you trade both long and short term will be fantasticKnowing what timeframe to look out for is very critical for your trade planning. Higher timeframe charts are more suited for long term trading while lower timeframe charts are more suited for short term trading.

Proper time management is very crucial for traders, there is no point in facing your computer 14 hours a day waiting for trade and have no life. Thus you need to set a time frame where you should be concentrating on finding a trade and planning your trade. Once the timeframe is over, you should be doing things that you love to do and live a life of your choice.

If you are looking for forex strategies to use, I bet you can find tons of them from the search engine plainly by searching the web. Moving averages are the average price over a given period of time.The common setting for the EMAs are 50, 100 and the 200 as the way they are situated can be a good way to distinguish the current trading trend.

Forex breakout is not the only forex strategy you can use, there are a load of different trading plan and strategies you can also learn online and put to use. Or you can develop your own strategies when you have acquired knowledge on trading. Accepting losses is something that is inevitable, there is never one strategy that can make 100% profit as the best traders only manage to get 70% profit. Hence do not give up after a series of losses and you should proceed to stick to your plan and you will see the profit soon.

For more detail in forex breakout, you can visit Kelvin’s blog. Kelvin is a full time Forex trader and he has setup a blog to provide free forex tips to help other traders to make their 20 pips a day.

Article Source:http://www.articlesbase.com/currency-trading-articles/effective-forex-strategies-you-must-learn-to-succeed-1391059.html

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Trading Forex With Moving Averages

October 6, 2009 · Posted in Currency Trading · Comments Off 

Moving Averages are popular and common trading indicators, used by countless traders worldwide. They are one of the oldest and more tested analysis tools in the markets, used for decades. In this article we will describe several trading methods and their strengths and weaknesses.

Moving Average is a very simple indicator – their are calculated by averaging all the previous closing prices. While there are several techniques of calculating averages, we will describe trading methods that are used regardless of exact calculation.
The main trading methods of Moving Averages are:

Method #1: Cross
This is the simplest and most well-known trading methods is the cross. In this method the trigger for entry is a cross of an MA by price, or by another MA which is quicker (has a lower period of calculation). For example, when a price crosses MA from below it will signal a long entry and a cross from above will signal short entry. This technique is generally a trend-following one and therefore also highly lagging: signals are given after price has began to trend and trader usually misses a major part of the trend. It is a useful system in trending FOREX pairs and commodities, and it losses in ranging markets with weak trends.
Many automated systems trade this method, whether directly or indirectly. Try to avoid such trading method as it performs only in narrow market conditions (strong trends) which are take places only in 20% of the time. If you choose to trade the cross, try to filter the signals using a trend filter like a Stop Order (that enters a trade after price advances a certain amount of pips). This increases the hit rate and profit potential of the cross method.

Method #2: Bounce
This is a more sophisticated trading method that is not as common as the cross, but is considerably more profitable. A bounce occurs when price touches a trending MA and instantly reverses, ‘bouncing’ off the Moving Average. In this method, the Moving Average performs as a support or resistance level that is blocking price.
This method produces much stronger signals which have several major advantages: First of all, because trades are issued on support and resistance, trader knows where to place its stop loss which is usually very tight. Second of all, the trader confirms that ‘the trend is on his side’, but enters with a leading signal rather than lagging.

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