Trading bounce using the EMA 20

Trading bounce using the EMA 20 is one of the popular methods for determining entry signals and identifying trend direction in trading. This article will explain how to use this technique and related trading strategies.

What is EMA?

EMA (Exponential Moving Average) is a technical indicator that smooths price data to indicate trend direction more responsively than SMA (Simple Moving Average). EMA gives more weight to recent price data, making it quicker to respond to price changes.

Bounce Trading and EMA 20

Bounce trading is a trading technique that utilizes price rebounds from support and resistance lines. In this technique, the EMA 20 is used as the bounce line. When the price approaches the EMA 20, it becomes a signal for entry.

• • Uptrend and Downtrend: When the price moves above the EMA 20, it indicates an uptrend, while when the price moves below the EMA 20, it indicates a downtrend.
• • Signal Candlestick: The signal candlestick is the first candlestick to touch the EMA 20, and this becomes the main focus for traders for entry.
• • Buy and Sell Entry: For a buy entry, place a buy stop pending order above the high of the signal candlestick, and for a sell entry, place a sell stop pending order below the low of the signal candlestick.
• • Stop Loss and Target Profit: Place the stop loss a few pips below the low of the signal candlestick for a buy entry, and a few pips above the high of the signal candlestick for a sell entry. Use the previous swing high/low as the target profit, or set the profit target at three times the initial risk.

Example Chart Scenarios for Buy and Sell Entries:

• • Buy Entry Scenario: When the price bounces from the EMA 20 and the signal candlestick forms above the EMA 20, place a buy stop pending order above the high of the signal candlestick.
• • Sell Entry Scenario: When the price falls from the EMA 20 and the signal candlestick forms below the EMA 20, place a sell stop pending order below the low of the signal candlestick.

Avoid the Following Scenarios:

• • Entering trades when the trend conditions do not support it.
• • Not paying attention to the signal candlestick or entering positions on candlesticks that do not meet the criteria.

Bounce trading technique with EMA 20 can be a good choice for traders, especially because EMA 20 is responsive to price changes. However, traders should pay attention to market trend conditions and use appropriate risk management strategies. With a good understanding of this technique, traders can increase their chances of success in their trading.

Share: