3EMAs Swing Trading System
The 3EMAS swing trading system is a very simple trading strategy that is based on 3 exponential moving averages(ema). These are 10ema, 25ema and the 50ema. A trade is initiated on the FAILURE of the retracement that happens after the 10ema crosses the 50ema.
Now, you may wonder, why not initiate a trade when the 10ema crosses the 25ema on the very first instance?
Well, the simple answer I can think of is this: the 50ema line acts as a support if price is above it and acts a resistence when price is below it, therefore, to make sure that price does not bounce off from this 5oema line, the 10ema must cross the 50ema before a trade can be taken.
Timeframe: 1hr and above
Indicators: 10ema, 25ema and 50ema
Currency Pairs: Any
Trade Entry Rules:
- Place a buy stop order 2-5 pips above the the high of the candlestick which has a lower high than the previous candlestick after the 10ema crosses the 50ema to the upside.
- Place a sell stop order 2-5 pips belwo the low of the candlestick which has a higher low than the previous candlestick after the 10ema crosses the 50eam to the downside.
- If the buy stop/sell stop order is not executed then continue to move the buy stop /sell stop order above/below each new lower high/higher low that forms until the retracement fails and the high/low of the candlestick is broken and trade is executed.
- You can use previous swing low levels as your profit target for a sell trade or previous swing high level for a buy trade.
- Or another option is not to have a profit target but use a trailing stop to place behind each lower swing high(for a sell trade) as your trade moves in favour so that your can ride out that trend for as long as you can extracting maximum pips out of the price swing until you get sopped out.
- Do the exact opposite for a buy trade.
Stop Loss Placement
- For a buy order, place your stop loss 2-5 pips below the low of the candlestick that has its high broken which then activated your buy stop order.
- For a sell order, place your stop loss 2-5 pips above the high of the candlestick that has it low broken which then activated your sell stop order.
- One of the best way of trade management is to trail stop behind lower swing highs (for a sell trade) or trail stop below higher swing lows,
- This enables you to lock in profits as trade moves in favor until your profit target is hit or if you don’t have a profit target, you can ride our the trend as far as it can go until you get stopped out.
- See the attached chart for more clarity regarding this.
Advantages of the 3EMAS Swing Trading System
- A very simple forex trading system, easy to understand and use.
- In strong trending markets, there is potential to make large profits very quickly.
Disadvantages of the 3EMAS Swing Trading System
- Ema’s are lagging indicators therefore any trade taken based on these indicators means that you are getting into a trade after price has moved, sometimes to a great deal already so you may not be entering a trade at right time
- If price moves a great deal, when you enter a trade, it may be due for a reversal and this would also get you stopped out.
- This trading systemwill perform poorly in ranging markets.
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A price action trading system is a process for using new price data to make buy and sell decisions on a watch list of markets. A price action trading system attempts to use entry and exit signals that have an edge by creating good risk/reward ratios that lead to profitable trading. There are five primary components in a trading system. You will need a watch list, depending on what markets you trade this list could be futures, Forex pairs, ETFs, or stocks. The items on your watch list should have good liquidity that creates tight bid/ask spreads that limit slippage. Your watch list can be filtered using fundamentals but should only be traded using price action. It is a good practice to trade markets that historically has had good trends in the past and consistent repeatable price patterns over the long term You need to backtest your watch list and study the historical price action patterns to find signals that have created good risk/reward ratios in the past. This means when you enter a trade your initial stop losses being triggered will create a small loss if the trade doesn’t work out, but your trailing stop and/or profit target will create a big win if it does. To manage the size of your drawdowns and eliminate your risk of ruin you will have to set guidelines for position sizing based on historical and implied volatility of the market you are trading. Also you have to consider the correlation of your positions and set parameters of how many open positions you can have if they move together or diversified. A good trading system can have diversified signals for trends, swings, and dip buying. This can help smooth the equity curve through different market environments. The trading system you choose to use must fit your own personal tolerance of risk and have the potential of meeting your return goals. You have to understand your edge and believe in the trading principles that will make your system profitable over the long term. You have to be able to mentally and emotionally deal with the inevitable drawdown that it will have when a market environment changes and have the perseverance and patience to trade it with discipline over the long term to achieve profitability.