Most of the readers will not understand what this means. However, the ones that do will definitely read it further and try to benefit from it. I know I did…
Technical traders love to read charts, trade off of indicators, chart-patterns, trend lines, support & resistance, and you name it. For me — the one thing that matters the most is — Price point. And I believe a study that captures the price by heart is — Moving Average. There are valid reasons as to why one would go with an EMA (Exponential Moving Average) vs. a SMA (Simple Moving Average). For the purpose of this article, I will not go into that explanation. Just know that I like to use 13 and 50 EMAs in hourly as my short-term signals to trade.
Best way to show is by an example:-
Bullish Trade: Once I establish an overall daily trend, I drill down to a shorter time frame to time my entry and manage my risk. Always like to take a starter position. Once the trade starts moving towards the intended direction, I add as it crosses a certain price point (resistance).
The chart below is of a company called Vicro Corporation ($VICR). Clearly the overall trend is bullish. Now what would be a good time to enter, so you improve your risk/reward, and at the same time not get whipsawed because of intraday moves.
The hourly chart (shorter time frame) with 13 and 50 EMAs is shown below. You can see when the price rises above 13 EMA, it is a good short-term bullish setup. I give myself enough time by having 13 cross the 50 EMA (aka Golden Cross) from below as a sign of confirmation before initiating long. I would go long at point A on the chart below, and add to position at point B.
Bearish Trade: The opposite setup of this trade, where 13 crosses the 50 EMA from above (aka Dead Cross), is where one can take a Short-position. Again, I have tried to show it with one of the recent trades I did. Went short at point A, and got stopped out of my short at point B. The reason was because the chart made a triple bottom at $39.25 price level, and I did not want to risk giving up my gains. That said, you can see the chart repeated the same pattern by touching the 50 EMA in hourly, and continuing its fall.
However, I have just now initiated a long position. But this one is a very short-term bounce play towards the falling 50 EMA in hourly. Basically, I will sell my long as the prices closes in on this 50 EMA. If it manages to stay above 50 EMA, and shows signs of strength in daily (which it could as it formed a ‘Hammer’ candle today), I may get back in to play the long side.