Introduction to the Exponential Moving Average Indicator
Moving averages are probably the most basic yet most effective trend following technical indicators. However, most moving average lines have a weakness of either being too lagging or too susceptible to price fluctuations.
The Exponential Moving Average is an attempt to arrive at a moving average line which has less lag and is less susceptible to price fluctuations.
What is the Exponential Moving Average Indicator?
The Exponential Moving Average indicator is a basic trend following technical indicator which is based on one of the methods of computing a moving average line.
It is a moving average line which places more weight on the most recent price data. This creates a moving average line which is very responsive to price changes. However, it also has a degree smoothening, making it less susceptible to price spikes and random fluctuations. The result is a moving average line which is both responsive to price action yet is also reliable as a trend direction indicator.
How the Exponential Moving Average Indicator Works?
The Exponential Moving Average (EMA) indicator uses a “Smoothing” value for it to plot a moving average line which has a smoothening effect. It uses a complex formula which places more weight on the latest price data. This creates a moving average line which is more responsive and reliable.
How to use the Exponential Moving Average Indicator for MT5
The Exponential Moving Average has a “Smoothing Depth” variable within its indicator settings, which is the number of bars used for the formula.
“Price Constant” refers to the price data point applied to the computation, which is usually preset as the Close Price.
This indicator also allows for the shifting of the moving average line forward and back using the “horizontal shift of the indicator in bars” and the “vertical shift of the indicator in points” variables.
As a moving average line indicator, the EMA indicator can be used as a trend direction filter, wherein traders would trade buy trades exclusively whenever price is above the line and sell trades exclusively when price is below the line.
It can also be used as a trend reversal signal indicator in conjunction with another moving average line based on the crossing over of the two moving average lines.
It can also be used as a dynamic support or resistance level, wherein traders could trade bounces off of its line.
Buy Trade Setup
When to Enter?
Identify an uptrend market characterized by price action being above the EMA line. Wait for price to retrace towards the EMA line. Open a buy order as soon as price action shows signs of a bullish price rejection on the level of the line. Set the stop loss on the support below the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of a bearish reversal.
Sell Trade Setup
When to Enter?
Identify a downtrend market characterized by price action being below the EMA line. Wait for price to retrace towards the EMA line. Open a sell order as soon as price action shows signs of a bearish price rejection on the level of the line. Set the stop loss on the resistance above the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of a bullish reversal.
Conclusion
The EMA line is one of the most effective moving average lines available to traders. It is an effective tool for traders trading trend following strategies.
MT5 Indicators – Download Instructions
This is a Metatrader 5 (MT5) indicator and the essence of this technical indicator is to transform the accumulated history data.
This MT5 Indicator provides for an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust their strategy accordingly. Click here for MT5 Strategies
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How to install MT5 Indicator to your MetaTrader 5 Chart?
- Download mq5 file below
- Copy the mq5 file to your Metatrader 5 Directory / experts / indicators /
- Start or restart your Metatrader 5 Client
- Select Chart and Timeframe where you want to test your mt5 indicator
- Search “Custom Indicators” in your Navigator mostly left in your Metatrader 5 Client
- Right click on mq5 file
- Attach to a chart
- Modify settings or press ok
- And the Indicator is available on your Chart
How to remove MT5 Indicator from your Metatrader 5 Chart?
- Select the Chart where is the Indicator running in your Metatrader 5 Client
- Right click into the Chart
- “Indicators list”
- Select the Indicator and delete
(Free Download)
Click here below to download:
