My understanding of the role of the EMA from the lectures is essentially a quick visual representation of the average price and a quick visual representation of an overbought/oversold market. Its an indicator, not market structure. A visual aid. Im speaking broadly and generally, just the gist. This is my understanding and it is very much in line with what Im seeing. The market is moving all the time through support and resistance and changing from one to the other, basically re-testing itself everywhere it goes on its way to its destination. This is the "tell" of what exactly the market is doing.
What I dont understand though, is the when someone says "I didnt like it because it finished below the EMA (long), yet the market is testing precisely the last breakout area. Or they will say "I want to see it come up and test the EMA" (long) but there is no market structure to "test" in that exact area at that moment, so of course its not going to look like its testing the EMA because theres nothing there to "test" because the EMA is an "indicator" not a physical thing that every trader on earth is looking at. Its just a little line on "our" screen.
Someone on macks forum swears that he will not take a long unless it finishes above the EMA or a short below, basically trading the EMA like its market structure. I dont see how on earth that would ever work because the EMA isnt a real thing, just an indicator, not structure.
When I watch Macks trades, he sort of talks like this but its situational. When I look beyond his words, hes trading mostly the underlying structure but he does on occasion pass on a trade that "finished below the EMA" even though the underlying structure is perfect. When this happens it throws me off and I cant really understand it, although its rare when he does this. The next day he will take a long 3 points under the EMA, a clear trade testing an important area on the chart, seemingly contradicting himself, although no doubt its me who is missing some aspect, or possibly they are just anomalies as nobody is perfect and/or its simply an expert eye trading from experience and it cant be taught.
I guess the point of this thread is to ask what is what and who is right and who is making stuff up arbitrarily, and if I understand the EMA's role in all this. I understand mean reversion trades and I understand not buying when really overbought (unless runaway trend), but why do some people trade the EMA (or VWAP or SMA or whatever for that matter) like its a rigid thing to be traded. Honestly it seems to me after looking at this for so long now that you could trade a pure naked chart without any indicators or moving averages at all just fine.
I dont seem to be actually looking at the EMA much anymore other than to check how "far away" it is, and im not sure if thats "right" or "wrong"? Im not ignoring it, but its not a rigid thing I consider anymore like it was when I started this journey.
Any feedback and/or insight would be appreciated.
EMA and conflicting information
Re: EMA and conflicting information
You are having some insights and working to differentiate! Nice work.
Please work through the market structure / bias lectures again. The ema often doesn't play a primary role in state changes with the exception of certain aspects. There is a set of situations and state changes where it does provide additional insight.
In general, the ema (all moving averages are lagging and the ema less so for the same period) provides simple biasing and can provide insight into "too high or too low" [as in we are 10 points away from the ema additional caution is warranted as a reversal is very likely]. So in general, it provides a general bias in trending markets, and also insight into trading ranges (above, below, above, below, or flat). So if the market is moving upwards, then well, prices will be above and vice versa. Just some easy simple rules, especially for beginners who most often pick the absolute worst trades.
Note, the 21 ema on a 2000 tick chart can be "very fast", meaning it may approximate a 10 ema on a 3 min chart. So, it is simply a biasing mechanism most of the time. Market context / structure plays a much more important role.
As Al has stated, a moving average isn't essential, but it provides enough additional insight and potential of trades to include it. Can you imagine how difficult things might be without a simple moving average on a chart (or other indicator). Until experience has been gained, that would be unimaginable. . .
Please work through the market structure / bias lectures again. The ema often doesn't play a primary role in state changes with the exception of certain aspects. There is a set of situations and state changes where it does provide additional insight.
In general, the ema (all moving averages are lagging and the ema less so for the same period) provides simple biasing and can provide insight into "too high or too low" [as in we are 10 points away from the ema additional caution is warranted as a reversal is very likely]. So in general, it provides a general bias in trending markets, and also insight into trading ranges (above, below, above, below, or flat). So if the market is moving upwards, then well, prices will be above and vice versa. Just some easy simple rules, especially for beginners who most often pick the absolute worst trades.
Note, the 21 ema on a 2000 tick chart can be "very fast", meaning it may approximate a 10 ema on a 3 min chart. So, it is simply a biasing mechanism most of the time. Market context / structure plays a much more important role.
As Al has stated, a moving average isn't essential, but it provides enough additional insight and potential of trades to include it. Can you imagine how difficult things might be without a simple moving average on a chart (or other indicator). Until experience has been gained, that would be unimaginable. . .
Re: EMA and conflicting information
Thanks Eric, will work through again as instructed.
Follow up question if you dont mind. Is the below a more or less true statement? Again just speaking broadly and generally.
The 21 EMA itself is kind of insignificant, on a technical level. You could use any moving average so long as it was fast and reactive enough for the purpose. You could use a 25, or a 31 or Vwap or whatever you wanted so long as it was quick/reactive enough to "indicate" what we are trying to use it for.
The "trick" of it is not the number or type, but length of time spent using it and experience using it through all the various market cycles over time. Familiarity. Knowing how far is too far, how flat is too flat, how steep is really steep etc.
A person who uses the 21 EMA exclusively, then swaps to VWAP, is going to have a hard time with it until they watch it for enough time. A person who starts with VWAP (for example) from the beginning and uses it exclusively, will be able to do more or less the same thing with it as we do with the 21 EMA. Meaning there is no magic voodoo with any of them whatsoever, its just experience with which ever you use.
Could these statements/comments be considered true? Again, speaking broadly and in the context of how we use moving average.
EDIT: I dont want to change our moving average at all, just trying to expand my understanding.
Follow up question if you dont mind. Is the below a more or less true statement? Again just speaking broadly and generally.
The 21 EMA itself is kind of insignificant, on a technical level. You could use any moving average so long as it was fast and reactive enough for the purpose. You could use a 25, or a 31 or Vwap or whatever you wanted so long as it was quick/reactive enough to "indicate" what we are trying to use it for.
The "trick" of it is not the number or type, but length of time spent using it and experience using it through all the various market cycles over time. Familiarity. Knowing how far is too far, how flat is too flat, how steep is really steep etc.
A person who uses the 21 EMA exclusively, then swaps to VWAP, is going to have a hard time with it until they watch it for enough time. A person who starts with VWAP (for example) from the beginning and uses it exclusively, will be able to do more or less the same thing with it as we do with the 21 EMA. Meaning there is no magic voodoo with any of them whatsoever, its just experience with which ever you use.
Could these statements/comments be considered true? Again, speaking broadly and in the context of how we use moving average.
EDIT: I dont want to change our moving average at all, just trying to expand my understanding.
Re: EMA and conflicting information
You are correct. There isn't any vodoo.
It isn't the moving average itself, but how prices tend to react with respect to the moving average. So, it is very possible to change a moving average to fit one's perspective of how and where certain reactions may occur.
21 ema vs 20 ema. . . . . . no difference, however mathematically not the same.
Hopefully helpful and good trades to you!
It isn't the moving average itself, but how prices tend to react with respect to the moving average. So, it is very possible to change a moving average to fit one's perspective of how and where certain reactions may occur.
21 ema vs 20 ema. . . . . . no difference, however mathematically not the same.
Hopefully helpful and good trades to you!