In forex trading, many beginners start with a simple moving average strategy. The basic idea is to buy when the fast-moving average (EMA) crosses above the slow-moving average, and sell when the slow-moving average crosses the fast one. While this method may seem easy, it often leads to losses, especially in range-bound markets. This happens because moving averages can give too many false signals when the market is not trending.
In this article, we will look at a better way to use EMAs in your trading strategy to improve your winning rate. The key is to adjust the settings of your moving averages and combine them with another useful indicator: the KDJ. This method helps filter out false signals and can boost your chances of making profitable trades with this trading strategy.
Adjust the EMA Settings for good results
A common mistake among beginners is using the default settings of the EMA indicator. For instance, most of the traders use a 9-period EMA, but this is not always the best choice for real market conditions. Professional traders usually adjust the settings of their moving averages to fit the market and their trading style.
To get better results with the EMA trading strategy, follow these steps:
- Open Trading View or your trading platform.
- Select the EMA indicator.
- Change the first EMA length to 21. This number is based on the Fibonacci sequence, which is commonly used in trading.
- Change the second EMA length to 55.
These settings work well on higher time frames, such as the 4-hour (4H) or daily (1D) charts. By adjusting your moving averages to these settings, you will get more accurate entry and exit signals, improving your winning rate.
Using the KDJ Indicator to Improve Your EMA Strategy
The EMA strategy works well in trending markets, but it doesn’t perform well in sideways or range-bound markets. This is because moving averages tend to cross frequently, giving false signals that lead to losses. To solve this problem, you can combine the EMA strategy with another powerful indicator: the KDJ indicator.
The KDJ indicator is a faster and more responsive tool that helps filter out false signals, especially in range-bound markets. It consists of three lines:
- K-Line (Fast Line)
- D-Line (Slow Line)
- J-Line (Most Sensitive Line)
The KDJ works like the EMA crossover strategy. Here’s how it signals:
- When the K-Line crosses above the D-Line, it’s a buy signal (Golden Cross).
- When the D-Line crosses above the K-Line, it’s a sell signal (Death Cross).
By adding the KDJ indicator to your strategy, you can improve your entry and exit decisions, making your trades more accurate and increasing your winning rate.
Combining EMA and KDJ for a Stronger Trading Strategy
Now that you know how to use the EMA and KDJ indicators, let’s discuss how to combine them for better results. This will be helpful avoid false signals and increase your chances of success in both trending and range-bound markets.
Trending Markets:
When the market is trending, you can use both indicators to confirm your trades:
- Buy Signal: When the price is above the 55 EMA, and both the EMA and KDJ show a Golden Cross, it’s a strong buy signal.
- Sell Signal: When the price is below the 55 EMA, and both the EMA and KDJ show a Death Cross, it’s a strong sell signal. Go ahead! and trade sell.
This combination helps you stay in the trend longer and catch the most profitable moves.
Range-Bound Markets:
In sideways markets, the EMA lines will frequently cross, leading to false signals. In such cases, you should rely more on the KDJ indicator:
- Buy Signal: Look for a Golden Cross of the KDJ when the price is near the low of the range.
- Sell Signal: Wait for a Death Cross of the KDJ when the price is near the high of the range.
By focusing on the KDJ indicator in range-bound markets, you can avoid many of the false signals that come from the moving averages.
Why Combining EMA and KDJ Improves Your Winning Rate
The main advantage of combining the EMA strategy with the KDJ indicator is that it reduces the number of false signals, especially in sideways or volatile markets. The moving averages provide a broader trend direction in market, while the KDJ indicator helps time your entries and exits more precisely.
This combination can makes trades more reliable and increases the overall winning rate. Whether you are trading forex or any other markets, using this strategy can improve your trading results and help you make better decisions.
Final thoughts
Incorporating the EMA trading strategy with the KDJ indicator can boost your winning rate. Adjusting your EMA settings and using the KDJ to filter out false signals helps you trade better in both trending and range-bound markets. This EMA strategy is very simple, effective, and 100% works for both beginners and experienced traders.
Remember that, successful trading is about finding best tools and strategies that suit your trading style. By combining these indicators, you can enhance your trading and increase your chances of success in forex trading.
Happy trading!
