ADX EMA Cross trading system is a trend following strategy. It is really a very simple strategy but a powerful one. The chart really looks clean which makes the traders easier to analyze the market. Any trader would agree to the fact that trend following strategies are the best one and they have higher probability of success than the counter trend strategies. However, the rules of the system should be exactly followed in order to get the best result out of it. One should master the common psychological aspects like self discipline and patience in order to make profitable trading using any trading strategies. If these aspects of trading are not mastered, regardless of what trading method is used, one will never make a profitable trading.
There are only two types of indicators used in this trading strategy. They are – Moving average and Average directional movement index (ADX).
- Moving Average
A moving average is a statistical calculation to analyze data points by creating a series of averages of different subsets of the full data set. A moving average is commonly used with time series data to smooth out short-term fluctuations and highlight longer-term trends or cycles. The threshold between short-term and long-term depends on the application, and the parameters of the moving average will be set accordingly. For example, it is often used intechnical analysis of financial data, like stock prices, returns or trading volumes. It is also used in economics to examine gross domestic product, employment or other macroeconomic time series. Advantages of MA..
- The greatest advantage of MA is, it fixes the irregular fluctuation in a Time series.
- MA is easy to understand and does not require any complex mathematical calculation.
In forex trading we use moving average to determine the trend of the market. Moving averages can be of short term and long term. Higher the periods you use in moving averages, smoother is the data. Most popular moving averages are 20, 26, 50, 100, and 200. In this system we use EMA4 and EMA11.
Average Directional Movement Index (ADX)
The ADX is a combination of other two technical indicators, the positive directional indicator (+DI) and negative directional indicator (-DI). The ADX combines them and smooth the result with an exponential moving average. In this system we have 3 ADX; +DI, -DI and general ADX.
Compatible Time frames and Currency Pairs
Time Frame: Daily
Currency Pairs: All
Buy Condition Using ADX EMA Cross Trading system.
- Exponential Moving Average, period 11 (EMA11) should be below the price.
- Exponential Moving Average, period 4 (EMA4) should cross above the EMA11.
- ADX should be greater than 22.
- +DI must be above –DI
Sell Condition Using ADX EMA Cross Trading System.
- EMA 11 should be above the price.
- EMA 4 should cross below the EMA 11.
- ADX should be greater than 22.
- -DI must be above +DI
Stop Loss and Take Profit
Stop loss should be placed 5 pips below/above recent swing low/high. You can take profit when the EMA 4 touches the EMA 11.
Open demo account to test this system.