20 EMA and Patterns

[phoenix01 10]

  JMC said:

Glad to see this thread is active again. I mainly trade CL and TF and use the 20 EMA (use a 100 EMA on the 1minute time frame) as my primary tool for trading. I've come to prefer actually entering at the EMA and managing from there. It seems to work great on most futures contracts. Here's a screenshot of the 1 minute chart of Gold this morning. Perfect textbook trend day movement with a nice $13 bounce off of the EMA around 8:20 AM EST.

 

Have you got an specific criteria which you look for to increase the probabilities of a bounce? Or do you simply enter in markets that are showing a strong trend?

[JMC 10]

  phoenix01 said:

Have you got an specific criteria which you look for to increase the probabilities of a bounce? Or do you simply enter in markets that are showing a strong trend?

 

No specific criteria other than I prefer markets that do have more intraday trending type movement. I've found CL to be the best in this category. Since choppy sideways action can be a problem with this method, I like to enter during times of the day where you're most likely to see vertical development; usually the first 2 to 3 hours of trading and occasionally the afternoon session.

 

Also, it seems the best trades in terms of overall risk reward occur as the trend begins to change, i.e. downward sloping EMA is pierced by price, EMA flattens out and is retested for support, go long, and vice versa. I really like the granularity of the 1 minute chart as you can really see these reactions in price at that EMA most of the time.

 

From my experience, you can almost always find 2 or 3 great trade entries at the EMA almost every day. Problem is, like with any method, there are also entries that either get run over and/or turn out to be losers. Though I'm still trying to get consistently profitable with this method, I believe there really is an edge here. Maybe it just takes time to develop a feel for what entries to take, and which ones to avoid?

 

I can post some more charts later on this afternoon. Would love to get a discussion going on this thread as I believe it's one of the best on TL.

[drm7 10]

I agree, this is an excellent thread. It's been tough finding an intraday setup that doesn't have you trading the noise. I think the best aspect of this type of trade is that it limits you to a few, "high-powered" trades per day.

 

 

  JMC said:

From my experience, you can almost always find 2 or 3 great trade entries at the EMA almost every day. Problem is, like with any method, there are also entries that either get run over and/or turn out to be losers. Though I'm still trying to get consistently profitable with this method, I believe there really is an edge here. Maybe it just takes time to develop a feel for what entries to take, and which ones to avoid?

 

.

 

Regarding your particular version of this setup (100 min EMA), a one minute chart should give you ample opportunity to look for confirmation rather than just entering a buy limit at the EMA. Enter on a stop at the high of the candle that pierced the EMA or something like that.

 

Also - this is a more general comment - the willingness to scratch trades may also help profitability. If the trade goes, say, 50% to 75% of the way to your profit target move your stop to breakeven. If you scratch, then just wait for the next opportunity.

One of the best price action traders I've seen is NoDoji on EliteTrader. She uses similar setups and scratches an ungodly number of trades every day. (I think she did 20 in a row one day.) She is also profitable almost every day.

[JMC 10]

  drm7 said:

I agree, this is an excellent thread. It's been tough finding an intraday setup that doesn't have you trading the noise. I think the best aspect of this type of trade is that it limits you to a few, "high-powered" trades per day.

 

 

 

 

Regarding your particular version of this setup (100 min EMA), a one minute chart should give you ample opportunity to look for confirmation rather than just entering a buy limit at the EMA. Enter on a stop at the high of the candle that pierced the EMA or something like that.

 

Also - this is a more general comment - the willingness to scratch trades may also help profitability. If the trade goes, say, 50% to 75% of the way to your profit target move your stop to breakeven. If you scratch, then just wait for the next opportunity.

One of the best price action traders I've seen is NoDoji on EliteTrader. She uses similar setups and scratches an ungodly number of trades every day. (I think she did 20 in a row one day.) She is also profitable almost every day.

 

Good points. I have personally gone back and forth on the waiting for candle confirmation for entry and just entering with a limit at the EMA. What I like about entering at the EMA (usually front run by 3 ticks with a limit order on CL) is the ability to take small initial risk, usually .10 to .20 based on volatility and then move stops even tighter once you get the turn you've anticipated.

 

Flip side of course is you can get run over and stopped out more than you'd like. The way I figure it is that your dealing in probabilities, and if over time you were to map out your entries and exits (just as important if not more so) you would, ideally, want to see a method that gave you the most favorable prices. Combine the fact that you can often get slippage on stop entries, as opposed to limit, and I think any edge gained by waiting on confirmation (ie. candlestick formation), and the inherent added initial risk and slippage on entry, is probably erased or at least a wash when compared to entering at the EMA. Just my thoughts.

 

Kicking myself as we type. Shorted 83.24 in CL as it tested the EMA, moved my stop to breakeven too quickly and was taken out +.10. Now it looks like we might sell off to the close of the pit session.:crap:

 

[brownsfan019 17]

JMC - nice posts and thanks for posting charts, visuals help a lot even if using a nasty background.

[JMC 10]

  drm7 said:

...

One of the best price action traders I've seen is NoDoji on EliteTrader. She uses similar setups and scratches an ungodly number of trades every day. (I think she did 20 in a row one day.) She is also profitable almost every day.

 

I am also familiar w/ NoDoji on the EliteTrader thread and she is pretty damn good. Uses trend lines and channels in addition to the EMA I believe.

[JMC 10]

  brownsfan019 said:

JMC - nice posts and thanks for posting charts, visuals help a lot even if using a nasty background.

 

Thanks BF. Thank you for starting this thread. It's had a huge influence on my trading. Got lots of screenshots I could share. I'll post them as I get a chance. Apologize for the black background. For some reason I've gotten use to it.

[JMC 10]

Almost identical type trade yesterday at almost the same time of day (1:30pm EST). Short on a test of the EMA. Didn't take it, but about a $1.30 move in 30 minutes. Got to love CL.

 

[JMC 10]

Looks like I should have held that short. Another low risk opportunity to get short as we just tested the EMA again. I passed on it as I typically do not trade after 2:15pm in oil.

 

 

 

Heading out. Everybody have a great weekend.

[joshdance 10]

  JMC said:

Almost identical type trade yesterday at almost the same time of day (1:30pm EST). Short on a test of the EMA. Didn't take it, but about a $1.30 move in 30 minutes. Got to love CL.

 

 

Actually even better was that it was a 100 tick move in 9 minutes. Got to love it even more

 

I use the 20 on 1m and 5m charts. That chart you showed actually was a 5m 20EMA near-touch. No 100MA necessary

 

Of course I think context is the most important. To use an EMA as confirmation is the best use, IMO. In this case, we had support just above prior double bottom, lower highs at the top, and a false break out of the triangle-shaped formation, which trapped enough longs (see the volume for the bar and the delta) to get enough shorts interested in taking it down. The EMA provided nice confirmation and additional incentive to shorts.

[joshdance 10]

  JMC said:

Kicking myself as we type. Shorted 83.24 in CL as it tested the EMA, moved my stop to breakeven too quickly and was taken out +.10. Now it looks like we might sell off to the close of the pit session.:crap:

 

Kicking myself harder. I called for this move down (CL Redux thread on ET) north of .20, yet I actually lost money and turned a 1K day into a few hundred dollars less. I shorted and shorted, and kept covering for BE and small losses because it would not break, and by the time it broke, the hype was mostly over and we were done. I did not play this well. Anyway, back to topic at hand.... I digress.

[brownsfan019 17]

One advantage to using the 1min on quick markets like oil is that when you are right, you will have an excellent entry point. I've always preferred to see what price does when it gets to the MA or area I'm watching, so I will wait and pay those extra ticks to see that price did stop at the MA. There's plenty of times I'd wish I had a limit order sitting there but when it cuts through like the MA is not there I'm thankful. And the 1min would for sure give you time to watch and still get in very early.

 

And yes, oil can be a tremendous market to trade that's for sure. On a $ for $ basis, I don't think there's anything else out right now that can touch it. As for slippage and how many contracts you can trade, that's where oil can get tricky where something like ES you will never be trading too much.

[JMC 10]

  joshdance said:

Kicking myself harder. I called for this move down (CL Redux thread on ET) north of .20, yet I actually lost money and turned a 1K day into a few hundred dollars less. I shorted and shorted, and kept covering for BE and small losses because it would not break, and by the time it broke, the hype was mostly over and we were done. I did not play this well. Anyway, back to topic at hand.... I digress.

 

I feel your pain. It's one thing to lose money and get stopped out when your wrong, in fact it should be expected (it's why we use stops). But when you are correct, to get out of a trade prematurely and miss the move, the move you anticipated to begin with. That's a whole new level of anger and frustration.

[phoenix01 10]

Brownsfan have you been consistently trading the 20 EMA with a live account for a while now and been successful? Its fine if you rather not go into details.

[brownsfan019 17]

  phoenix01 said:

Brownsfan have you been consistently trading the 20 EMA with a live account for a while now and been successful? Its fine if you rather not go into details.

 

IMO it's good to at least reference the 20 EMA as that seems to be the EMA of choice - at least among the forums. Now, how you use it and implement can be a different story as you see in this thread. You can go with a 5min chart and 20 EMA, JMC posted charts w/ the 100 EMA on the 1min chart, entries/exits... you get the idea. Actually, I would say the entry technique is pretty straightforward, it's exits that can make or break any system. So IMO this thread has demonstrated a few ways to use an EMA and a few ways to enter, but exits are a different story. And exits continue to be what causes me the most frustration in my trading b/c you will never exit at the high or low w/ consistency.

 

The strength of this thread is people posting recent/active charts w/ entry possibilities highlighted and then the exit is really up to the individual person as I don't believe the perfect exit exists.

 

I also think the EMA ends up lining up with other retracement entry techniques - such as Fibonacci retracements. So if out there in the trading world we have the 20 EMA guys trading right were fib retracement guys are trading along w/ <insert your retracement tool of choice> and you could get a good heap of people all trading around the same spots.

[ake 10]

Exits.

 

I prefer to enter long with a buy stop a tick above the signal bar and place my stop loss a tick below the low of the entry bar.

 

I like to target a 'measured move'. In an uptrend, if the swing point at the EMA is C, and the swing that starts the retracement is B, I place a limit order to take profits at a distance equal to that between A to B, that is, the length of the last leg of the trend.

 

I exit at market if there is a price climax on the way to my target.

 

Any other ideas for exits?

[joshdance 10]

A moving average is simply a measure of value. Everything we do in trading centers around value, because when we buy we view that the price is undervalued relative to where it should be, and when we sell we are selling on the premise that the price is currently overvalued and will decline.

 

Value can be measured many different ways: by the closing price of the day or the current bar, the VWAP, the daily pivot, the POC over a range, and so on. The EMA is simply another tool to do this. So, when price is above a particular moving average, this means that the current price is higher than its 20-bar closing price. Subsequently, if price returns to that average price, then buyers will see this as a "bargain" because the scenario is bullish, yet we have a bargain price because we are AT the 20-bar closing price value.

 

Primitive though it may be, a 5 minute 20 bar EMA can be a good approximation of value in the very short term, and traders can use it successfully.

[joshdance 10]

  ake said:

I like to target a 'measured move'. In an uptrend, if the swing point at the EMA is C, and the swing that starts the retracement is B, I place a limit order to take profits at a distance equal to that between A to B, that is, the length of the last leg of the trend.

 

A quick way to measure this (for anyone who's new to this idea) is to use the retracement tool found on all software packages (may be called the "fibonacci retracement tool"). Connect low to high, then high to retracement point, and the 100% mark is the target you describe.

 

  ake said:

I exit at market if there is a price climax on the way to my target.

 

This is of course the challenge. You don't know it's a climax until it reverses and verifies that it's a climax. Some great tools are available for this, one of my main ones being volume analysis (a la Wyckoff), but when price is strongly moving, momentum trumps all notions of exhaustion and climax, as the resources in continuing a trend are virtually unlimited in today's world. Essentially, "exhaustion" is not really possible when the financial resources of large trading groups are virtually unlimited, particularly true with algo buying and selling, as they keep doing what they're told and often take a move far beyond what a human would do by themselves.

[drm7 10]

  ake said:

Exits.

 

 

 

Any other ideas for exits?

 

Disclaimer: NOT trading live at this time

 

I'm pretty early in this process, but what seems to work is an initial stop loss one tick below/(above) the entry bar for a long/(short) position entered one tick above/(below) the signal bar.

 

The profit target would be a limit order 2 ATRs above/(below) the entry point (your choice between the trigger point or the actual fill point.)

 

Another optional rule would be to move stop to breakeven on a 1 to 1.5 ATR move. My eyeball testing shows this to save many, many losing trades without cutting into nearly as many winners.

 

Size your positions based on 1 ATR.

 

ATR defined as a 14 bar EMA of the last 14 high-low. Your platform most likely has this as a built-in indicator.

 

What you'll find is that you won't capture the "epic" moves, but your win % should stay around 50%. If you use 5 min or 1 min bars, you get several trades per day.

 

A consistent 50% win rate with a 1.8/1 (don't forget commissions/slippage) return/risk ratio and 2-3 trades per day would result in pretty huge gains in a year.

 

I'll try to post some screenshots next week to see how this system performs. It would have made huge $$ on Friday in CL or ES, but Friday was an ideal day.

[ake 10]

  joshdance said:

You don't know it's a climax until it reverses and verifies that it's a climax.

 

By climax I only mean a large range expansion bar or two. Discretion plays a role in determining whether a large range expansion close to the target is enough reason to exit, naturally.

[JMC 10]

Couple of nice short entries this morning in CL around 10:20am and 11:15am EST. Caught the first entry and once again got to cute with my stop and was taken out +2 ticks (Need to have more patience with moving those). Missed the second entry as I had stepped away briefly.

 

 

Also should be noted I got runover (- .20) buying the pullback at 9:30am. Starting to favor Brownsfan's recommendation of briefly waiting to see how price reacts to the EMA before jumping in. Got to be quick, but it worked quite well on the first short entry as I was able to get short 83.70 using only a stop loss of 6 ticks at 83.76 above the recent high. I'd much rather take a 6 tick loss as opposed to a 20 tick bludgeoning.

[JMC 10]

Also, for any other oil traders on this thread, you probably like to watch what the dollar is doing intraday. DX reacts quite well with the EMA. This morning you can see a test and bounce off of the EMA around 10:25am EST. Not that I trade this contract, but I do keep an eye on it.

 

[joshdance 10]

  JMC said:

Couple of nice short entries this morning in CL around 10:20am and 11:15am EST. Caught the first entry and once again got to cute with my stop and was taken out +2 ticks (Need to have more patience with moving those). Missed the second entry as I had stepped away briefly.

 

Perhaps of note is that the 15m 20EMA is also in almost the same location, providing multiple time frame participants the motivation to sell there. Also, the globex vwap is around the second couple times. Finally, Friday's RTH VPOC is near the second couple of entries as well. So, confluence provides powerful signals.

[Deusomega 10]

My simplistic view as a newbie.

 

[joshdance 10]

Not very simplistic really ;-) Wyckoff/VSA is always quite easy in hindsight .. the difficult part of course is real-time, particularly with 1 minute bars. Often it's just quite counter-intuitive--see the attached chart, last part particularly.