My mother once told me that life drives between expectations and the efforts made to fulfil them. The line of your efforts must be near the expectation’s line. The expectation’s line should must be above the effort’s line. You should always try to take the line of your efforts near the expectation’s line because when someone stops expecting something he/she will not put efforts for fulfilling the expectation. I was not able to understand what she was trying to say.She illustrated an example of the squirrel. She told me that the squirrels start collecting grains before the arrival of winter season. They keep on collecting the grains even after there is an enough quantity of grains with them. They always keep on raising their expectation and collect more and more grains. Their this superb effort helps them survive the severe winter. This example diverted my mind towards the moving average exponential indicator or the exponential moving average.
So, let’s start the discussion about the indicator.
The moving average indicator functions on the basis of recent price action. The method for calculating Exponential Moving Average are:
- Calculate simple moving average.
- Calculate the multiplier for weighing the Moving Average Exponential( EMA).
- Calculate the current Moving Average Exponential.
The mathematical formula for calculating the moving average exponentials : [closing price – EMA (previous day)] x multiplier + EMA( previous day). It’s calculation is a complex one but trust me you don’t need to calculate it. Its value is already calculated for the different stocks.
STRATEGIES RELATED TO EMA:
This strategy requires the use of three moving average exponential indicator. For using it you just have find it in the indicators section to click three times on it. Now click on the settings icon of the appeared indicator, for the first one select 5 days, for the second one select 8 days and for the third one select 13 days.Whenever there is a cross over between these three lines. It leads to generation of a signal to either to buy or short the stock.
STRATEGY TO BUY:
If the value of 5 days moving average is more than the value of 13 days moving average and the value of 8 days moving average lies between the two, then this is a signal to buy the stock. The 5 days line acts as the line of expectation which is above the line of efforts( 13 days line). So, to fulfil the expectation the stock is putting in efforts.
STRATEGY TO SELL:
In this picture after the generation of cross over, the 13 days line moves above the 5 days line which suggests to short the stock. Here the line of expectations( 5 days line) moves below the line of effort. Thus, suggesting decrease in the expectation to do good and putting less efforts, to fulfil them. As a result the stock’s price falls.
So, this is it for this article. In my upcoming articles I will be writing about the other strategies. In order to do profitable trades using other technical indicators do read my other articles.