Swing Strategy Basic #1: :(5EMA And 8EMA Cross Over Swing Trading System)

Forex Swing Trading Strategy #1

Overview Of The 5EMA And 8EMA Cross Over Swing Trading System

This is one of the very basic swing trading strategies that uses 5ema and 8ema indicators. The underlying principle of this system is that if the faster exponential moving average(5ema) crosses the slower exponential  moving average(8ema) to the upside, its an indication of an uptrend. If 5ema crosses 8ema to the downside, its an indication of a downtrend.

Timeframes: 4hrs, daily.

Indicators: 5ema & 8ema

Currency Pairs: Any

Long Entry Rules: Wait for 5ema to cross 8ema to the upside. Buy at the close of the candlestick that closes after the ema’s have crossed. Place your stop loss 5-10 pips below the low of that candlestick.

Short Entry Rules: When 5ema crosses 8ema to the downside, sell at the close of the candlestick. Place your stop loss 5-10 pips above the high of that candlestick.

Take Profit: You can use a couple of options for take profit

• if you take trades based on the daily chart, exit on the 7th day. The 7th Day includes the  entry candlestick day.
• similarly if you take trades based off the 4hour timeframe, exit on the 7th candlestick after the entry. The 7th candlestick includes the entry candlestick.
• or your profit should be set at  least 3 times the risk on that trade

Trade Management :

How would you manage a profitable trade placed witht eh 5ema and 8ema cross over swing trading system? Well, here’s a couple of options you can use:

• If trade moves in favour, and you want to lock in profits, the best option is to move stop loss and place behind the high(or low) of each subsequent candleticks that forms. That means for a short trade, move stop loss and place above the high the candletick that continues to make lower highs. For a long trade, move stop loss and below the low of each subsequent candletick that continues to make Higher Lows.
• Or if on the daily timeframe, you may try to use a 50-80 pips trailing stop.
• If on the 4hr timeframe, use 25-40 pips trailing stop.

Advantages of the 5EMA And  8EMA Cross Over Swing Trading System

• easy to understand and implement.
• in a strong trending market, there is potential to make a lot more profit when you ride out the trend with good trade management.

Disadvantages of the 5EMA And 8EMA Cross Over   Swing Trading System

• This trading strategy would give a lot more false signals in a ranging market.
• stop loss are quite big depending on the timeframe that is used so you need to adjust your  position sizes to bring your trading risk to an acceptable level.
• Moving averages are lagging indicators and therefore every entry taken based on this swing trading system is effectively “late”.  Which simply means that price had already made a big move and you would  have not gotten into the trade at the start of that move because the entry of the 5ema & 8ema trading system is based on lagging moving average indicators.

Therefore by the time the forex trading system gives the signal to enter, the market may be due for a temporary reversal.

(Credit to Mangi Madang)