The forex 5ema and 8ema trading strategy is a moving average crossover forex trading system.
The five ema is the fastest exponential moving average indicator, which means it responds faster to price movement than the eight exponential moving average.
When five ema crosses eight ema to the upside, the trend is up, so you only look to buy.
When five ema crosses the eight ema to the downside, the trend is down, so you look for an opportunity to sell.
Strategy Trading Parameters And Requirements
Currency Pairs: Any MT4 but preferably the majors.
Main Indicators: 5ema and 8 ema.
Timeframes: any buy entry, preferably 15 minutes and above.
- 5ema crosses the 8ema to the upside.
- Whichever candlestick makes the 5ema and eight ema cross is the signal chart candlestick: place a buy stop entry order at least 1-2 pips above the high of that candlestick.
- For stop-loss, look for the nearest chart swing low or support level and place your stop loss(SL) a few pips 2-3 pips under it. This is so that you can avoid getting stopped out early. If the nearest chart swing low/support level has a significant stop loss distance, place your stop loss(SL) at least 5-10 pips under the low of the signal candlestick.
- To take the profit target, wait until an opposite signal is generated, take whatever profit you have, and bailout. When you see a sell entry signal generated, you exit your buy trade with whatever profit you have made.
- Five ema crosses 8ema back to the downside.
- The signal candlestick is that chart candlestick that makes the ema’s cross. That signal chart candlestick must close first to confirm the crossover before placing the order.
- Put a sell stop order 1-2 pips below the low of that signal entry candlestick.
- Put your stop loss(SL) just a few pips above the nearest chart swing high/resistance level. If that stop loss(SL) distance is too large, then place your stop loss 5-10 pips above the high of the signal candlestick.
- Take profit(TP) target: take whatever profit you may have when an opposite buy signal is generated.
Advantages of the five ema and eight ema forex trading strategy
- The 5ema and the 8ema respond quickly to price moves compared to, say, ten ema and 16 ema or 25ema and 34 ema, and as such, you have a good opportunity to get into a trade at the earliest start of a trend.
- In a strong forex trending market, this system will give you good profits.
- The rules are straightforward to follow and understand.
Disadvantages of the five ema and eight ema forex trading strategy
- Any forex trading strategy that uses moving average indicators as trade signals to buy or sell will lag compared to price. And as such, it will only make any trade entry taken after the price has moved, sometimes a significant deal.
- In a non-trending market, you will have many false buys and sell signals.