Have you anytime thought that a simple moving average like “EMA” can help you take trading decisions in Intraday? You will be shocked to witness the same below.
In this article we will look at which EMA best suits fro intraday trading. Along with that we will also confine ourselves to a single instrument so that we can master the price behaviour in that instrument
As a trader you might have seen several people using “EMA – Price Crossover / Price Crossunder” as a Buy/Sell signal. But does that really work is the question of the moment.
I have a question for you here. If a fundamentally good stock is going higher and higher and you don’t get an opportunity to enter, and all of a sudden there is a healthy dip, would you not buy it?
Ofcourse, you would because you are getting it cheaper than the previous high it made. Now, why do you think there is a dip? It’s because institutions have got their eye on that and want to establish their position in that stock. Now, would they buy it at top or at the dip? Definitely at the bottom.
So, as a retail trader you should always look at a dip in price after a rise as a buying opportunity and rise in price after a fall as selling opportunity.
As things are not fixed in trading, the same holds true in this case too. But then how to identify if an institution is buying or selling?
Here’s the answer. In a trending market, institutions try to average their price while buying or selling. One good way to identify this is by taking help of Exponential Moving Average.
Lets now shift our focus to intraday trading which is the main topic of this article. Following are the steps to be followed to identify/trade.
- Apply EMA(9) on Nifty
- Spot the rise and fall of price
- Observe if the price is coming to support after a rise or price is coming near resistance after a fall
- When the price takes a support or resistance near the EMA, look for a good price rejection. You may take the help of Candlestick pattern to judge the price rejection.
- After taking a U-turn, price must break the previous High/ Low which is where you enter.
As you saw in the above chart, on Jan 2 2020 during the first hour, price was bullish. It took a support near EMA9 and broke its previous high of 12230.95. It then rallied upto 12290 later during that day.
In the above chart of 6 Jan 2020, Price fell sharply during the first hour. It then rose until 12100 which is the EMA9. As soon as the previous swing low got broken, price fell until 11970 later that day.
On needs to keep in mind that it works only on a trending day / Volatile Day.