Harnessing the 5-8-13 Exponential Moving Average (EMA) Trading Indicator - GFF Brokers (2024)

  • The 5-8-13 Exponential Moving Average (EMA) combination is a favored tool among day traders, providing a responsive and precise insight into fast moving markets.
  • By applying this EMA trio effectively along with other indicators, you can significantly refine your entry and exit points.
  • Given the volatile nature of day trading, a meticulous and adaptive approach is critical when using this tool.

Day trading is a realm of split-second decisions, where success can hinge on the accuracy and timeliness of the information at a trader’s disposal. Within this dynamic environment, having an effective tool that offers both speed and precision becomes invaluable. Enter the 5-8-13 Exponential Moving Average (EMA) combination—a favorite among day traders.

Understanding the 5-8-13 EMA Configuration

The Exponential Moving Average (EMA) is a powerful tool in a trader’s arsenal. Unlike its counterpart, the Simple Moving Average (SMA), which attributes equal importance to all price data, the EMA emphasizes the most recent prices. As a result, the EMA becomes a fast-reacting instrument, perfectly tailored for the quick decisions that day trading demands.

So, why the numbers 5, 8, and 13? These are Fibonacci numbers, a sequence that frequently emerges in natural patterns and is deeply embedded in trading folklore for its seeming ubiquity in market trends. While there’s no scientific confirmation that Fibonacci numbers can anticipate price actions, their widespread use often turns them into self-fulfilling prophecies that can influence market dynamics (because many day traders may be using them).

Why Day Traders Use the 5-8-13 EMA

It’s Sensitive to Market Movements: With the 5-day EMA being hyper-sensitive to immediate price shifts, it offers day traders real-time insights, enabling them to act swiftly.

It Provides Some Layered Analysis: The 8-day and 13-day EMAs serve as intermediary and longer-term measures, respectively. Their combined insights provide a more holistic view of the market’s direction.

It Reduces Market Noise: One of the biggest challenges in day trading is the overwhelming volume of ‘noise’ or irrelevant data. The combined 5-8-13 EMA attempts to filter out this noise, helping traders focus on the essential cues.

How to Use the 5-8-13 EMA

  • Prepare Your Chart: Begin by plotting the three EMAs (5, 8, and 13 periods) on your trading chart.
  • Identify Momentum: A bullish trend might be brewing when the 5 EMA surges above the 8 and 13 EMAs. Conversely, a bearish inclination is suggested when the 5 EMA dives below its two counterparts.
  • Add Another Indicator to Reinforce Your Trading Signal (optional): It’s wise not to rely solely on one metric. Reinforce EMA-based insights with other technical instruments like the Relative Strength Index (RSI) or the Stochastic Oscillator for a comprehensive reading.
  • Decide On Your Exit Strategy: A common approach among day traders is to use the 5 EMA as a guide. Exiting a trade could be when the 5 EMA reverses its course, crossing the 8 EMA in the opposite direction to the initial trade.

As you can guess, the rules here are pretty loose, so it’s important to use sound judgment, experience, and ongoing market analysis to refine and optimize your trading strategy.

Let’s take a look at a few examples.

Example 1: ES 1-Hour Chart – September 13 – 18, 2023

Harnessing the 5-8-13 Exponential Moving Average (EMA) Trading Indicator - GFF Brokers (1)

This example illustrates two longer day trades on the S&P futures using the 1-hour chart.

A: Coinciding with the NYSE market open, a trader might have opened a long position, as the 5-8-13 EMA is in full positive position (the 5 EMA is above the 8 EMA which is above the 13 EMA). This is an Opening Range Breakout which tends to be a volatile period in trading as participants are entering their buys and sells at the same time. You would have placed a stop loss below the range swing low.

B: The ES trended steadily in this session, and the slowdown in momentum after market close (see blue rectangle) would have been a good time to close your long position with a positive return.

C: This “short” trade took place at the NYSE market open on the following day, going short upon a break below the small pre-market range.

D: This trade turned out to be more volatile and once momentum slowed after market close (see blue rectangle), it would have been a good time to close a short position, again with a positive return.

Now let’s take a look at an example of the 5-8-13 EMA combo using a much shorter timeframe.

Example 2 : CL – 5-minute chart – September 21, 2023

Harnessing the 5-8-13 Exponential Moving Average (EMA) Trading Indicator - GFF Brokers (2)

You’re looking at a 5-minute chart of crude oil futures (CL). Similar to the above example, the trade takes place upon a breakout of the opening range.

A: A long trade right at the breakout of the early morning range as the 5-8-13 EMAs into “full sail.” It might be wise to place a stop loss below the lowest point of the range.

B: If you missed the breakout, note the following entry points that came minutes later. Price came close to (or touched) the 13 EMA but the three averages remained in “full sail” mode, indicating continued bullishness.

C: The 5 EMA dips below the 8 EMA as momentum stall; a good exit point for the trade.

Conclusion: The 5-8-13 Combo, a Trader’s Ally

The 5-8-13 EMA combination is a highly valuable tool for day traders navigating the volatility of the markets. This trio, emphasizing recent prices, helps in distinguishing significant market moves from irrelevant noise, which can help you make clearer and more informed trading decisions. When utilized effectively, it can help enhance your precision when timing entries and exits in fast-moving markets. However, given the unpredictability of markets, use this tool judiciously and remain adaptable to any changes that can signal you’re on the wrong side of the trend.

Please be aware that the content of this blog is based upon the opinions and research of GFF Brokers and its staff and should not be treated as trade recommendations.There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.

Be advised that there are instances in which stop losses may not trigger. In cases where the market is illiquid–either no buyers or no sellers–or in cases of electronic disruptions, stop losses can fail. And although stop losses can be considered a risk management (loss management) strategy, their function can never be completely guaranteed.

Disclaimer Regarding Hypothetical Performance Results: HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

Harnessing the 5-8-13 Exponential Moving Average (EMA) Trading Indicator - GFF Brokers (2024)

FAQs

Harnessing the 5-8-13 Exponential Moving Average (EMA) Trading Indicator - GFF Brokers? ›

Prepare Your Chart: Begin by plotting the three EMAs (5, 8, and 13 periods) on your trading chart. Identify Momentum: A bullish trend might be brewing when the 5 EMA surges above the 8 and 13 EMAs. Conversely, a bearish inclination is suggested when the 5 EMA dives below its two counterparts.

Is the 5 EMA strategy profitable? ›

The setup makes our trading more profitable with minor losses and major profits. Let's know what EMA stands for: “Exponential Moving Average” is a technical chart indicator that tracks the price of a stock/index over time, giving more importance to recent price data.

What is the 8-13-21 EMA strategy? ›

The 8, 13, 21 Exponential Moving Average (EMA) strategy employs three EMAs: the 8-day EMA, 13-day EMA, and 21-day EMA, each offering insights into market trends and potential trade entry and exit points.

Which EMA combination is best? ›

What is the best setting for EMA crossover? The best setting for EMA crossover depends on the specific market, timeframe, and trading style. Commonly used EMA combinations include 5 and 9, 9 and 21, 20 and 50, and 200 and 100. However, there is no universal setting that works for all scenarios.

What time frame is best for EMA indicator? ›

Short-term traders typically rely on the 12- or 26-day EMA, while the ever-popular 50-day and 200-day EMA is used by long-term investors. While the EMA line reacts more quickly to price swings than the SMA, it can still lag quite a bit over longer periods.

Do professional traders use EMA? ›

The Bottom Line. Foreign currency traders use a number of tools to help them establish buy and sell points for the currencies they trade based on price trends. One of these is the exponential moving average (EMA). Traders typically use a short-term and a long-term EMA to trace the point of convergence between the two.

What is the most profitable trading strategy of all time? ›

Profit Parabolic” trading strategy based on a Moving Average. The strategy is referred to as a universal one, and it is often recommended as the best Forex strategy for consistent profits. It employs the standard MT4 indicators, EMAs (exponential moving averages), and Parabolic SAR that serves as a confirmation tool.

What is the most successful moving average strategy? ›

The best way to trade moving average is to use the crossover strategy, where a shorter-period moving average crossing above a longer-period moving average generates a bullish signal, and vice versa for a bearish signal. This method helps indicate potential changes in the market trend.

Which moving average is best for scalping? ›

First off, both SMA and EMA are the best indicators for 1 minute scalping. The Simple Moving Average (SMA) tracks the average closing price of the last number of periods. For example, a 50-day SMA will display the average closing price of 50 trading days, where all of them are given equal weight in the indicator.

What is the best moving average crossover for swing trading? ›

20 / 21 period: The 21 moving average is my preferred choice when it comes to short-term swing trading. During trends, price respects it so well and it also signals trend shifts. 50 period: The 50 moving average is the standard swing-trading moving average and is very popular.

What is the 5-8-13 moving average crossover strategy? ›

The 5-8-13 EMA combination is a highly valuable tool for day traders navigating the volatility of the markets. This trio, emphasizing recent prices, helps in distinguishing significant market moves from irrelevant noise, which can help you make clearer and more informed trading decisions.

Which moving average indicator is best? ›

But which are the best moving averages to use in forex trading? That depends on whether you have a short-term horizon or a long-term horizon. For short-term trades the 5, 10, and 20 period moving averages are best, while longer-term trading makes best use of the 50, 100, and 200 period moving averages.

What is the best moving average combination for day trading? ›

5-8-13 Moving Averages

The combination of five, eight, and 13-bar simple moving averages (SMAs) offers a relatively strong fit for day trading strategies. These are Fibonacci-tuned settings that have withstood the test of time, but interpretive skills are required to use the settings appropriately.

How to set 5 ema in tradingview? ›

  1. if price is below 5 Ema and not touching Ema use as alert candle..
  2. if price break high of alert candle strategy open trade ..
  3. if price move more downside high of alert candle keep change into next candle ..
  4. input we can select number of trade per day .as rule should take only 4 signal should execute.
Jan 13, 2024

How do I set up an EMA indicator? ›

Some typical EMA indicator settings are 10 and 25 for faster, more responsive curves; or 100 and 200 periods for smoother, slow-moving curves. For those who want an EMA indicator somewhere in the middle, a period of 50 might be more appropriate.

What is 4 9 18 EMA strategy? ›

The third canlde closing (and a fourth candle opening) is the signal to sell short at the market when the 9 ema < 18 ema. When the 9 ema> 18 ema, the set up would be for a long trade. This is from last Thursday's CPI news day.

Which EMA is best for a 5 minute chart? ›

Therefore, the exponential moving average may be considered the best moving average for a 5 min chart. A 20 period moving average will suit best. The MACD indicator is based on the exponential moving averages. Usually, it consists of two lines and a histogram.

References

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