Fundamental / Technical Analysis - 315 EMA Strategy - How To Use Effectively in STRATEGIES & PLANS - SMA: A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a ...
06-24-2011 12:47 AM
315 EMA Strategy - How To Use Effectively
SMA: A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods.
EMA: A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data.
The first step is to understand what is 315, its advatages and disadvantages.
The second step is to understand some rules I have derived to use it effectively. Rules are related to effective entries, effective SL management, effective profit bookings, effective re-entries and in the end effective money management or effective safeguarding the capital.
In this post I would focus on step 1 i.e what is 315 etc.
315 Strategy for swing trading
315 is a simple swing technique which tries to identify a trend very early. In this strategy we use only EMAs name EMA 3 & EMA 15 (hence the name 315).
People ask me why EMA 3 and EMA 15 . For me last 3 days define the immediate average price. To find the slightly longer term trend i use the factor of 5. This is becuase 5 has an interesting relevance to markets. We have approximately 5 hours of trading everyday, 5 trading days in a week, almost 5 trading weeks in a month. So I simply multiple 3 by 5 to get my 15 EMA which defines my medium term average price.
Now in simple terms, if our immediate average price is higher than the medium term average price that means we are entering in a bull swing and visa versa. Hence the strategy entries are:
- Enter Long when 3 EMA goes above 15 EMA (When the "Green" line shoots over "Red" line in below chart)
- Enter Short when 3 EMA goes below 15 EMA (When the "Green" line dips below "Red" line in below chart)
Live Chart - The below chart is, live last 15 days chart and is valid whenever you are seeing it.
Advantages of following 315 strategy
Disadvantages of 315 Strategy
- A simple technique using just 2 EMAs, no other oscilattors or indicators required. NO advanced charting softwares required.
- System is based on following the ULTIMATE indicator available i.e price action.
- Keeps a trader in the trend, lets the full swing to complete. Never gets a trader against the trend.
- Since we are just following price action, we dont need to worry about divergences etc.
- Works brilliantly in a trending market but can whipsaw in extremely ranging markets. However this can be overcome by certain rules and money management to be explained later in this thread.
So this is what the strategy is folks, do some chart reading and see how it works on EOD charts. Do post any questions you have here.
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