Watch This EMA Video First
In the video below I walk you through a quick explanation of a basic EMA setup. After watching the video, I’ve included the main points as notes below.
What EMA’s Were Used in the Video?
Two exponential moving averages were used in the video above. There was a 7 period EMA, which was referred to as the “fast” EMA. This is because it is based on only recent candlesticks, so it reacts more quickly “fast.”
There was also a 21 period EMA, which in this case is referred to as a “slow” EMA. It’s “slow” because it incorporates a longer history of candlesticks so it takes longer to react to price changes “slow.”
EMA Divergence Gap
Two “gaps” were mentioned in the video above. The first one explained was the EMA Divergence Gap. This is the distance between the 7 period EMA and the 21 period EMA. This gap can become wider (i.e. diverge), or become narrower (i.e. converge). Plotted a different way this is the MACD, but that will be covered in another video.
When looking for a potential exit, it’s best to look for a widening (divergence) of the EMA Divergence Gap.
Candlestick-EMA Divergence Gap
The second gap mentioned in the video above was the gap between the candlestick itself and the fast EMA.
A good exit sign for when prices near their peak (in a long trade) or valley (in a short trade) is when there is a significant gap between the candle itself and the fast EMA. If one of the previous few candles can fit in this gap, this is a potentially good exit signal as long as the EMA Divergence gap is also at it’s maximum wideness.
Final Thoughts on EMA Profit Divergence
EMA Profit Divergence is a great way to look for when your trades are losing steam. After entering a trade using Forex Sailing, this signal may cause you to exit a trade for a profit earlier than your limit being hit. but this can also help you “keep” profits before your trade reverses against you
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