Strategy tools “5 EMA H / L”
Despite its complex name, the operation of this system is based on just two instruments, represented by one single Moving Average indicator with different settings. It is built into the standard package of any terminal tools, including MT4, and is also known to you as the “Moving Average”. Two Moving Average curves, one of which is colored blue, the other one is red. You can install them on the chart individually or as a ready-made template that can be downloaded at the end of the article. In the first case, they are installed as standard for all instruments built into the terminal – along the path “Insert → Indicators → Trend → Moving Average” or through the “Navigator”:
You see how to find our indicators in the “Navigator” window to set them on the chart. When placing any instrument on the chart, its properties window immediately opens. In our case, we set the Moving Average indicator twice, but with different settings for each moving average:
- The red curve is an exponential moving average with a period of 5, applied to “Low”.
- The blue curve is also an exponential moving average with a period of 5, but it applies to “High”.
You can change the color scheme of visualization of the working window and candles in MT4, as well as the color of both our EMAs.
Based on these two moving averages, we will trade. How exactly this is done, I will tell you a little later. For now, let’s remember what we call a “pip” and what we call a pip. This is necessary because according to this strategy we are interested in exactly the “pip” profit.
A few words about points and pips
In the Forex market, points and pips are counted against a five-digit quote. Take, for example, a quote at 1.27750 – this is a standard five-digit Forex quote. The last (fifth) digit “0” is just a “pip”, as the minimum value of price change in Forex. The four digits after the dot in front of the pip are “pips”.
For example, the price at this point in time is 1.27750, then it changed – 1.27751. As you can see, the fifth and last digit after the dot has changed, which means that the price has changed by 1 pip.
If the first four digits after the dot change, then they speak of a change in points. For example, the price was 1.27750, then changed – 1.27760. Accordingly, it changed by 1 point. When 1.27750 changes to 1.27850, the price has changed by 10 points or 100 pips.
Signals and trading rules for “5 EMA H / L”
So, according to the rules of this scalping strategy, we work:
- At TF – M5.
- With a currency instrument – Euro / dollar.
We consider the possibility of entering the market only after the candle closes below the red EMA curve. At the close of this 5-minute candle, we enter the market by opening a buy order:
Under the terms of this strategy:
- Set Take Profit equal to 5 pips (not points!);
- Our Stop Loss is 8 pips.
As you can see, trading according to the “5 EMA H / L” strategy is pegged to pips, not points – remember this!
Possible result of the transaction: take profit by Profit or close by Stop Loss.
It is clear that not every entry point will be profitable for us. For example, entering the market at points 2, 3, and 5 will result in the closing of a trade at Stop Loss. As a result, out of 8 entry points, 3 deals will be clearly unprofitable. After completing one trade, we continue to watch the price pending the close of the next 5 minute candle.
Here we consider the possibility of entering the market only after the candlestick closes above the blue EMA curve. At the close of such a 5-minute candle, we enter the market by opening a sell trade:
- Take Profit here is also 5 pips (not points!);
- Stop Loss – 8 pips.
Possible result of the transaction: take profit in 5 profitable pips or close by Stop Loss in “minus 8 pips”.
Thus, we make transactions every 5 minutes. What do you think, how many trades with this strategy can a trader make during one working day? How many of them will be profitable and unprofitable?
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Continuing the theme of the 5 EMA H / L strategy we are studying, I must tell you that the author is not categorical about his rules. He even recommends experimenting with Take Profit and Stop Loss, setting them higher. You can also trade other currency instruments. I think that in this case, this strategy will be a little like scalping.
Taking into account the specifics of trading on TF M5, transactions can be made every 5 minutes. You need to start trading from the moment the European session opens, when the EUR / USD volatility is highest. During the Asian session, when the movement of this currency pair is as low as possible, I think there is no point in trading. In addition, the size of the spreads during the Asian session cancels out all the profits expected from scalping.
During testing, in just one day, I made deals almost every 5 minutes. The results of this trade were disappointing. In general, the picture is as follows:
- I closed by Take Profit and Stop Loss, most of the deals were closed by Stop Loss.
- In an attempt to experiment, I was carried out of the market on the momentum of a candle with slippage.
- During the entire testing period, I watched my deposit decrease.