Every forex trader likes it when money is getting in and not when cash is flowing out of the account. However this is usually a hard thing to achieve especially over time. Actually you may make a huge profit once but then out of greed you place another uncalculated trade the ends up draining your account.
In forex, if you are ready to make money and not to give out money, then you have to be sure of when to enter a trade and also when to exit out of a trade. This can be achieved mainly by using indicators.
Indicators are small programs that helps a trader in identifying or spotting a trend in the market. The trend may be short lived or long lived. However not many people like it when the chart gets to look untidy due to the indicators. Although you may argue that trading on a plain chart looks cool, it may not be so when you aren’t sure when to open trades and how to go for profits.
The exponential moving averages is one of the indicator to use. This indicator assigns different weights to previous prices and also takes into account the preceding price information of the currency under survey.
Using the exponential moving average indicator
Once you have your exponential moving average indicator on your chart then watch the market till there is a candle or bar that touches the moving average indicator line. The indicator is either touched during an uptrend or on a down trend.
When there is a candle that touches the exponential moving average, open a trade at the close of a reversal candle, in the direction of the reversal just at the close of the reversal candle. Then place a stop loss at two to three pips away.
Then as the market moves the stop loss is move to every next swing high. In case you are using two indicators as in the figure 2 below then the swings of both should be considered.
UPTREND
DOWNTREND
The trade is closed when the stop loss is hit. Therefore as long as it is not hit and another swing takes place move you stop loss to the next swing.
You should note that this is not an indicator that you use once and leave the market expecting to make profits. If you want to make profit then you have to be there so as to watch what is happening. You shouldn’t give up as long as the stop loss isn’t hit.
The objective behind using the double exponential moving averages is so as to determine the trend direction.
An uptrend on a two exponential moving average combination is shown occurs when the shorter term of two consecutive averages intersects the longer one upward. On the other hand a downtrend occurs when the longer of two consecutive averages intersects the shorter one downward. When this happens then wait for the bars to touch the lines and begin your trading.
Good luck.
Dema-moving-average . rar
Source : forexobroker.com
