🧵8/21 EMA STRAT THREAD
I take ~75% of my trades using one indicator: Moving Averages. They’re great tool, but can get you into trouble if used improperly.
What are moving averages and how do I use them in my trading?
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I take ~75% of my trades using one indicator: Moving Averages. They’re great tool, but can get you into trouble if used improperly.
What are moving averages and how do I use them in my trading?
👇
A moving average (MA) is a graphic representation of the average closing price of the last x amount of candles. For example, the 8 MA will show you the average price of the last 8 candle closes. 21 MA gives average price of last 21 candle closes etc.
MA’s are time based; when you change timeframes, the MA will also change. On a daily chart, the MA gives the average of the last x daily candles, on a 5m chart, the MA will return the average of the last x 5m candles. 
THERE IS NO RIGHT OR WRONG MOVING AVERAGE
I use the 8 and 21 MA, some use the 9/20, others use the 15/50. It doesn’t matter. Experiment and find what MA and timeframe works best for you.
Same for time frame. I use the 5m, but MA's can be used on any timeframe.
I use the 8 and 21 MA, some use the 9/20, others use the 15/50. It doesn’t matter. Experiment and find what MA and timeframe works best for you.
Same for time frame. I use the 5m, but MA's can be used on any timeframe.
I use the 8/21 MA on the 5 minute chart to identify trends. If the 8 ema is above the 21 ema, that signals a short term bullish trend. If the 8 is below the 21, that signals a short term bearish trend
Personally, I also use vwap in this process. 8ema > 21ema > vwap = bulls in control. 8ema < 21ema < vwap = bears in control. As a day trader, this helps me avoid trading against the trend.
MA’s will act as a moving level of support and resistance on your chart.
When an uptrending stock pullback to the ema’s, the price is at support. When a downtrending stock retraces to the ema’s the price is at resistance.
When an uptrending stock pullback to the ema’s, the price is at support. When a downtrending stock retraces to the ema’s the price is at resistance.
As a day trader, I want to avoid chasing the move. Stocks don’t go straight up or straight down, they move in trends. MA’s can help me identify where an existing trend may continue.
The Strat
For me, an A+ bullish setup using this strategy is when price is trading above the 8ema, which is over the 21ema, which is over vwap. I am waiting for a retest of my 8ema and looking to see buying pressure (ideally in the form of a hammer candle)
For me, an A+ bullish setup using this strategy is when price is trading above the 8ema, which is over the 21ema, which is over vwap. I am waiting for a retest of my 8ema and looking to see buying pressure (ideally in the form of a hammer candle)
After confirming as support, I look to enter calls targeting either HOD or my next resistance. If price breaks the 8 and pulls back to the 21, I’m looking for the same thing to happen there.
An A+ bearish setup using this strategy is when price is trading below the 8ema, which is under the 21ema, which is under vwap. I am waiting for a rejection of my 8ema and looking to see buying pressure (ideally in the form of an inverted hammer candle)
After confirming as resistance, I look to enter puts targeting either LOD or my next resistance. If price breaks the 8 and retraces to the 21, I’m looking for the same thing to happen there.
Crossovers
When the 8ema crosses the 21ema on my 5m chart, I take that as a signal that the short term trend has flipped.
This shifts my bias from long to short and vice versa. After the crossover, I’m looking to play the above strategy for a continuation of the reversal.
When the 8ema crosses the 21ema on my 5m chart, I take that as a signal that the short term trend has flipped.
This shifts my bias from long to short and vice versa. After the crossover, I’m looking to play the above strategy for a continuation of the reversal.
Crossovers ARE prone to fakeouts. To avoid this, I will sometimes use the 10m chart to see what the larger trend is. If the 10m chart is giving me a different signal, I’ll likely sit on my hands until I receive additional confirmation.
Example of crossover fakeout:
Example of crossover fakeout:
Why It Works
Stocks move in trends. IMO, adding at support in an uptrend & resistance in a downtrend is the best way to manage risk. EMA’s provide both support/resistance and trend identification.
Stocks move in trends. IMO, adding at support in an uptrend & resistance in a downtrend is the best way to manage risk. EMA’s provide both support/resistance and trend identification.
As with any indicator/strategy, nothing works in a vacuum.
I use ema’s in conjunction with general market themes, fib levels, options flow, and other key levels to identify high probability trades with good risk:reward.
I use ema’s in conjunction with general market themes, fib levels, options flow, and other key levels to identify high probability trades with good risk:reward.
If you’re struggling using moving averages, don’t give up. It took me about a year to develop a strategy around it + trust that strategy.
I've linked some additional resources below that can help you get a understanding of how you can use them.
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I've linked some additional resources below that can help you get a understanding of how you can use them.
💎
Great thread by @SherriBoatQueen on the EMA's
https://twitter.com/SherriBoatQueen/status/1495872003626217479?s=20&t=ZhIocML4woCwj0B1O8t0Ug
Below are all recapped EMA trades with detailed charts:
https://twitter.com/DiamondxTrades/status/1511533766577172480?s=20&t=ZhIocML4woCwj0B1O8t0Ug
https://twitter.com/DiamondxTrades/status/1511529123180597248?s=20&t=ZhIocML4woCwj0B1O8t0Ug
https://twitter.com/DiamondxTrades/status/1510697328226799617?s=20&t=ZhIocML4woCwj0B1O8t0Ug
https://twitter.com/DiamondxTrades/status/1510697310161981442?s=20&t=ZhIocML4woCwj0B1O8t0Ug
https://twitter.com/DiamondxTrades/status/1509656800785801225?s=20&t=ZhIocML4woCwj0B1O8t0Ug
https://twitter.com/DiamondxTrades/status/1502082229069041670?s=20&t=ZhIocML4woCwj0B1O8t0Ug
https://twitter.com/DiamondxTrades/status/1501715263020232708?s=20&t=ZhIocML4woCwj0B1O8t0Ug
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