EMA Channel Strategy is the intraday trading strategy which is based on two EMAs (Exponential Moving Average).
The exponential moving average (EMA) is a technical chart indicator that tracks the price of an investment (like a stock or commodity) over time. The EMA is a type of weighted moving average (WMA) that gives more weighting or importance to recent price data.
Chart Type: Japanese Candle Sticks
Indicators to be used: Exponential Moving Average (EMA)
Setting Up Charts and Indicators
I will be using Investing.com’s charting to demonstrate this setup. We will be using a time frame of 5 mins and two EMAs of period 50. The one EMA should be added on the Price High and the other EMA should be added on the Price Low.
Now we will change the settings of EMA to Period 50 and instead of close, we will set one EMA to High and the other EMA to Low of Price. Click on the settings (as shown in the above image ) icon of EMA to change these settings.
Buying Rules
When Price Closes above EMA Channel, we can initiate buy above the high of closing candle.
When trade is already running, the pullback towards EMA can be used for fresh entry or pyramiding of the exiting trade.
Stop Loss: Initial Stop Loss can be below the low of candle closing above EMA Channel or previous swing low. Trail SL according to EMA channel. Keep SL and Target Ration minimum 1:2.
Selling Rules
When Price Closes below EMA Channel, we can initiate sell below the low of closing candle.
When trade is already running, the pullback towards EMA can be used for fresh entry or pyramiding of the exiting trade.
Stop Loss: Initial Stop Loss can be above the high of candle closing below EMA Channel or previous swing high. Trail SL according to EMA channel. Keep SL and Target Ration minimum 1:2.
Additional Considerations
One can also consider the slope of the EMA Channel to take proper entry which will avoid unnecessary stop-loss getting triggered. For example, the Slope of the channel is upward, chances of success in this setup are high.
One should avoid a trade if the slope of the channel is flat, which indicates choppy (range bound) market conditions.
Disclaimer: Any information provided here is for educational purposes only. We are not responsible for any profit or loss incurred due to the use of this information. Please consult your financial adviser.
