Analysis of EMA Indicator
Trend Identification
The trading MA technical indicator can be used as an indicator for generating signals. A buy or sell signal is generated when price either moves above or below the EMA moving average, respectively.
If the EMA is moving upwards in diagonal manner then the general xauusd trend is upwards.
If the on the other hand the EMA is moving downwards in diagonal manner then the general xauusd trend is downward.
EMA Bullish Trend
If the EMA is moving up, then the trend is upwards and the signal generated is a buy signal.
As long as the price is above the MA indicator - then the trend will remain as an upwards trend. The Moving Average will act as a 'support level' & price action should not close below the EMA Indicator.
Buy Trade Signal
When the price moves above the EMA and closes above the moving average indicator - a buy signal is generated.
Traders, who want to confirm the trade signal before trading, should wait until the EMA line turns and starts to move in an upward trend direction. It's always best to wait for the confirmation signal so as to cap chances of a whipsaw.
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Bearish Trend
If the EMA is moving down, then the trend is down ward and the signal generated is a sell signal.
As long as the price is below the EMA then the trend will remain as down ward trend. The EMA will act as a "resistance level" and price action should not close above the EMA.
Sell Signal
When the price moves below the EMA and closes below the moving average - a sell signal is generated.
Traders who want to confirm the signal should wait until the EMA line turns and starts to move in a downwards direction. This will reduce the chance of trading a whipsaw.
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Range signals
Range signals can also be identified using the EMA Indicator.
EMA Crossover Method Strategy
The EMA MA cross over strategy is also another signal generation strategy which is popular among traders compared to the above signal generation strategy. Moving average cross over strategy is also the simplest form of a system widely used by traders. This EMA crossover strategy is combined with other indicators to form more complex strategies.
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