EMA Trading Questions

[Decap]

Hi There,

As a prefix I'm completely new to trading but I'm eager to use my software programming skills to first of all gather some data to analyze myself.

To give some context to the stock im trading with, it's a virtual stock (ie no real money traded) which updates every 15 minutes with the new stock price.

What I'd like to do is ask a few questions around this to see if i'm looking along the right lines.

Each stock "tick" im gathering the data and gathering the EMA(10) and EMA(21), im wondering if this are the right values, i'm looking at doing short term (day?) trading.

Once I have this EMA data im running two checks to see whether it would be a good time to buy or sell.

The first, if the EMA10 is > EMA21, then sell and vice versa. This appears to work fine but it seems a bit simplistic as im sure there should be times when it's undecided, i understand that this is crossover trading.

I'm also looking at calculating the difference as a percentage between the two EMA values, and if the EMA dif is less than the threshold then Buy. For this i'd appreciate clarification as to whether or not this is a good idea?

tldr;

- For a 15 min updating stock, is EMA(10) and EMA(21) suitable.
- For calculating indicators is using a simple less than or more than on the EMA's suitable?
- Is using a percentage dif calution between the EMAs also a good indicator?

 

[jw1981]

Hi There,

As a prefix I'm completely new to trading but I'm eager to use my software programming skills to first of all gather some data to analyze myself.

To give some context to the stock im trading with, it's a virtual stock (ie no real money traded) which updates every 15 minutes with the new stock price.

What I'd like to do is ask a few questions around this to see if i'm looking along the right lines.

Each stock "tick" im gathering the data and gathering the EMA(10) and EMA(21), im wondering if this are the right values, i'm looking at doing short term (day?) trading.

Once I have this EMA data im running two checks to see whether it would be a good time to buy or sell.

The first, if the EMA10 is > EMA21, then sell and vice versa. This appears to work fine but it seems a bit simplistic as im sure there should be times when it's undecided, i understand that this is crossover trading.

I'm also looking at calculating the difference as a percentage between the two EMA values, and if the EMA dif is less than the threshold then Buy. For this i'd appreciate clarification as to whether or not this is a good idea?

tldr;

- For a 15 min updating stock, is EMA(10) and EMA(21) suitable.
- For calculating indicators is using a simple less than or more than on the EMA's suitable?
- Is using a percentage dif calution between the EMAs also a good indicator?

For a newb, you ask some really valid questions which most traders tend to realize much later on.

Firstly regarding EMA 10/21: I'm sure you must have come across other MA values as well. There is no magic MA number. Rather focus on the time period/candles... For example a 10 day or 5 day MA is the average closing price (assuming MA is applied to close) of the past 10 days... and then there's the concept of which MA to use.. simple, which gives same weight to all values and so on.

10 EMA on 15m chart is the average closing price of the past 10 candles, which is nothing but the average closing price in the past 150minutes (2 and half hours).. This value could have more weight it you combined it for example with a trading session. There are many methods (such as London break out session for example) so combining a 10 EMA during the first 2/2.5 hrs of a trading session gives you a better idea than taking the cross-overs at face value.

For a 15 minute chart you'll have to find a MA value that makes sense rather than opt for just some random number or because it fits perfectly in your backtest. I can't comment on 15mins as I don't trade that TF, but hope this gives some food for thought on using MA's.

You might be able to get some profitable trades if you consider the price difference... ex: a long bullish bar on a bullish crossover says something, compared to a weak candle on a bullish crossover.

Also bear in mind that MA's are lagging. So by the time the crossover happens and you take on a trade, you would have missed out some part of the action... in a strong trending market, this can be ignored, but if the market is ranging the crossover could come in just a few candles away from a key turning point.

 

[raferrol]

A system based on the crossovers of 2 EMAs will give you many false signals when the instrument you're trading is in a range and will give you late signals to enter and exit when the trend emerges.

I suggest you should start by reading some good trading books to grab some concepts and prior to put your hard-earned money at risk. I'd recommend "Trading for a Living" by Alexander Elder.

I have worked through tonnes of pages of trading literature and the more I read the more I like Elder's books. Of course there are many other books an authors I'd recommend, but honestly if I had to start again, my first book would be the mentioned.

Regards,