Forex Exponential Moving Average Scalping
In Forex trading, scalping is a popular method, one which provides lots of small profits, and the best way to go about this is by using exponential moving averages. No, it’s not the only way to scalp trade in Forex, but using EMA as your top technical analysis tool definitely works quite well.
Today, we are here to discuss moving averages, specifically exponential moving averages, what they are, and how to calculate them too. As you will then find out, our mentor, Andrew, has a great 5 minute scalping strategy for Forex using these exponential moving averages.
Moving Averages – The Basics
Before we get into the Forex exponential moving average scalping strategy which Andrew discusses in the featured video, it’s probably a good idea to know what these are. So, what is a simple moving average, what’s an exponential moving average, what do they tell us, and how are they calculated?
So, first off, we have moving averages as a whole. Moving averages is a very popular and widely used indicator. The main point of a moving average is to filter out noise from random short term price fluctuations in order to smooth out price action.
These moving averages are most often used to determine support and resistance levels and to identify trend directions. As you will see today, they are great for Forex scalping. There are a few types of these indicators, and today we want to discuss the SMA and EMA, or simple and exponential moving averages.
Simple Moving Average
Before we get into what exponential moving averages are, you first need to know what simple moving averages are, as the latter are needed in order to calculate the former. A simple moving average is often used in Forex, and it’s calculated by adding up the closing price of an asset, in this case foreign exchange pairs, and then dividing it by the number of days added up.
In other words, if you are working with a 20 day time frame, add up the closing price of the 20 days, then divide by 20. Simple moving averages, or SMAs are used to identify price trends and to estimate the potential for change in a trend.
Exponential Moving Average
The exponential moving average is also known as a WMA or weighted moving average. This is similar to the SMA, but it places much more weight on the most recent data. The EMA responds much quicker to the most recent price changes than the SMA does, an is therefore ideal for placing short term trades.
As you will see in the featured video, Andy uses 3 EMA lines in order to trade Forex via a scalping strategy. Just so you know, scalping involved placing a large number of short term trades based on recent trends and price movements, which here are figured out through the use of the exponential moving average. EMA is best to use for short term trades in this regard.
Calculating an Exponential Moving Average
Before we go over the featured video, where Andrew explains his 3x EMA strategy for Forex scalping, it’s probably wise for you to learn how to calculate an exponential moving average. Remember, the first part here is to calculate the simple moving average, which we taught you how to do in the above section. After this is done, you need to calculate the multiplier for smoothing for the previous EMA.
The formula for doing this is quite simple, [2 ÷ (selected time period + 1)]. So for a 20 day chart, the formula would be [2/(20 +1)]. Lastly, the actual EMA is then calculated using the following formula, [Closing price-EMA (previous day)] x multiplier + EMA (previous day). Yeah, it’s a little complicated, but the best way to learn and master this is simply by practicing it.
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Andy’s Exponential Moving Average Scalping Strategy
Ok, so now you know the most important basics about moving averages, specifically about exponential moving averages. Now it’s time to discuss how Andrew uses these EMA lines in order to place scalping trades in Forex. We are not going to go over a step by step tutorial in detail here, because it’s honestly a bit hard to understand with words alone. Luckily, in the featured video, Andrew goes over the whole process of this 3x EMA scalping strategy, so you can see it in action right in front of your face.
Here, Andrew uses a series of 3 separate exponential moving average lines, along with a few other things, in order to place highly profitable Forex scalping trades. Sure, these might be short term trades, and only with small investments, but the point here is sheer quantity. Yes, each trade is going to provide small profits, but those add up real fast.
Here is the basic strategy or method which Andy uses in order to place Forex scalping trades using the EMA technical indicator. Keep in mind that you should watch the embedded video, as all of the following steps are explained in great detail, and you get to watch it all unfold right in front of your eyes. It’s always easier to learn this kind of thing when you can see someone else doing it.
- Place 3 exponential moving average lines (details explained in the video).
- Adjust the settings according to Andy’s instructions.
- Wait for the proper conditions, as outlined in the trading video.
- Wait for the first candle to touch the EMA, and count 5 candlesticks back.
- Exit the trade at the next support for sell and at the next resistance if you placed a buy order.
Forex Scalping with Exponential Moving Averages – Conclusion
At the end of the day, this particular 5 minute Forex scalping strategy, with the exponential moving average as its basis, is one of the best for placing short term trades. Now, if you really want to learn everything there is to know in this regard, there’s no better way to do it than by joining the Income Mentor Box Day Trading Academy.