Basics of Trading with EMAs using Multi Timeframes MTF Explained
The Basics of Trading with EMAs using Multi Timeframes MTF Explained
To be able to trade successfully you need to understand how timeframes influence price movements.
Here I'm using the Litecoin D1 chart to illustrate.
On a chart you can see 3 sets of EMAs from different timeframes with crosses marked by dots: 12 (aqua), 26 (purple), 50 (red), 200 (blue)
D1, W1, Monthly EMAs use thin, medium, and thick lines respectively.
Note: W1 and Monthly don't have EMAs 50 and 200 because there's not enough history, so there are less lines to watch
There are also 2 indicators: Historical Volatility and EMA Cross MTF Grid
The following relation between EMAs is timeframe specific:
- D1 EMA50 is roughly EMA12 of the W1 higher timeframe
- D1 EMA200 is almost exactly EMA26 of the W1 higher timeframe, but not quite
you can use such EMA approximations to avoid switching timeframes, for example, H1 EMA200 = H4 EMA50 or you can use my Multi SMA EMA MTF indicator.
Choose timeframes wisely: M15, H1, H4, D1, W1, Mo
Some people also use 195 min, 2H, 3H, 6H, 12H, 2D, 3D, 3Mo to watch how price propagates in between.
General Ideas of EMA Trading:
1) Make sure you're in a trend on the current and higher timeframe.
You will be more confident to set higher price targets when both timeframes are going in the same direction, and lower targets when the higher timeframe is in the opposite direction in correction.
When in sideways market:
- no trade high risk zone
- not every EMA cross up means an up trend. you can have a sideways market with multiple crosses negating each other (Litecoin Feb-Mar 2017). EMAs won't help you there.
- this is especially true for faster EMAs: 12,26. But on a Daily/Weekly even a faster EMA becomes relatively slow and therefore more reliable because a lot of effort goes into a single candle.
- use a series of multiple EMA crosses on cur/higher timeframes and EMA slopes to confirm the start of a move in a specific direction
- use Super Guppy/SuperTrend/PVT trend indicators to gauge trend
- use a series of higher highs/higher lows, 5 waves up etc - basic methods to establish that price is trending
- wait for a clear breakout with volume confirmation with 1-2 higher tf bar closes above R level, retest and follow through
- look at historical volatility, buy low (blue), sell high (red)
- use oscillators
- switch/trade higher timeframes that are in a trend
- switch/trade another asset
Keep In mind:
- Trading the trend on higher tfs (D1, H4) is simpler than on lower tfs with lots of noise and indecision, you have less everything: less noise, less outcomes, less lines to watch.
- Sideways trading/Scalping in general is not worth the time/effort - you will most likely lose your money to bots. This is high risk trading that only applies to small positions and requires attention, precision and lots of skill to be profitable.
- Trading large positions and portfolios requires higher liquidity and hedging and can be done using options or margin trading with 2 open positions in opposite directions on several exchanges.
Use margin/short only when you know what you're doing.
Always calculate R/R and fees. You can lose money on fees even when the trade was profitable.
if you trade low liquidity coins for pennies expect flash crashes with huge wicks and stop order execution only at the bottom - use stop limit instead.
Last, but not least: you don't want to become the market. If you buy up the whole asset - the price will go down, as there will be no more buyers (Oil, US History)
2) When in an up trend (Reverse is true for down trend)
You can observe the following price behavior on the chart:
- price is above EMA12 - up trend, likely to bounce at EMA12
=> aggressive: buy the dips with a stop loss
- price is below EMA12, above EMA26 - likely to bounce at EMA26 or next supporting EMA: EMA50 or EMA12 of the higher timeframe
=> conservative: buy the dips with a stop loss
- EMA12,26 cross down - correction/sideways/reversal - start of down trend => exit longs and/or short with a stop loss after the cross or on retest of EMA12
=> expect a sell off and possible retest of the closest EMA12,26,50 with further sell off
=> price tends to go all the way to EMA200, but can be stopped by the next supporting EMA50 or EMA12,26 of the higher timeframe in the same direction
- price is below EMA200 - correction/reversal that can propagate to/cause a correction/reversal on a higher timeframe
=> look for a series of EMA crosses/slopes in the direction of a new trend on both cur/higher timeframes
- further 2x2 crosses down EMA12,26 x EMA50,200 - additional confirmation of the trend change
=> expect a sell off and possible retest of EMA50,200 with further sell off
- further 2x2 crosses down EMA12,26 x EMA12,26 of the higher timeframe - additional confirmation of the trend change
=> expect a sell off and possible retest of the closest EMA50 or EMA12,26 of the higher timeframe with further sell off
- when both cur/higher timeframes have the same direction, expect a bounce at the first touch of the EMA12,26 of the higher timeframe with a move higher
as sloping of EMA12,26 of the higher timeframe starts to decline expect lower bounces/sideways
the price will only break down when the sloping of the higher timeframe changes to down. Even if price breaks before that it will likely be bought up immediately with a huge wick
- when cur/higher timeframes have opposite directions, expect a rejection at the first touch of the EMA12,26 of the higher timeframe, price won't reach EMA200
as sloping of EMA12,26 of the higher timeframe starts to rise expect lower dips/sideways
the price will only break up when the sloping of the higher timeframe changes to up. Even if price breaks sooner it will likely to be sold into immediately
- you can gauge trend direction using sloping of W1 and Monthly high timeframes pretty reliably even without a cross because a lot of time/effort goes into changing it.
entries:
- on a EMA12x26 cross up or after on retest of EMA12
- on a 2nd EMA12x26 cross up after the price dips below and bounces at EMA26 to regain EMA12 support
- after a change of slope up/cross up on a higher timeframe
- on low volatility (blue, zero) - open position in the direction of a trend.
If both cur/higher tf trends are up - long, down - short.
If they have opposite direction use the direction of the cur tf trend and lower targets.
exits:
- agressive exit when EMA12 changes slope to flat/starts declining
- conservative exit on EMA12,26 cross down
- at a major resistance/EMA above: EMA200 or first touch of EMA12 of the higher timeframe
- on high volatility (red)
Notes:
- you don't need EMA50, EMAs 12,26 and EMA200 will be enough, but you can use EMA50,200 golden crosses for additional confirmations
- Monthly EMA12 has just slightly dipped below Monthly EMA26, stayed there for 2 months and broke back up - that's how we averted the 2019 crisis. Bottom's in
- Timeframes on EMA Cross MTF Grid are from top to bottom: Mo, W1, D1, H4, H1. As you can see, Monthly, W1, D1 are smooth green while H4 and H1 are choppy and filled with crosses/noise.
- EMA Cross MTF Grid crosses are lagging 1 bar, Crosses on EMA curves are also lagging due to smoothing enabled
___________________________________________________________
All EMAs are fanning up with corresponding EMA sets above each other - W1 EMA26 is crossing Monthly EMA12 => up trends on all H1,H4,D1,W1,Mo timeframes
Based on all this you can expect for Litecoin:
1. up trend for coming weeks with quick dips to D1 EMA12 (128) or EMA26 (119) that will be bought up immediately
Only after EMA12,26 cross down in a couple of weeks (EMA targets will move higher):
2. a larger drop to W1 EMA12 (105) which is already above the major 100 horizontal support - that will be bought up on the first pass
(after the first cross the price will likely regain support of EMA12, cross back up and go higher)
3. on a major correction at some point a further drop to Mo EMA12 (81) that will again be bought up on the first pass
4. on W1 EMA12 slope change to down - a final drop to EMA200 (77) or possibly below (stop loss wick hunt) that will again be bought up on the first pass
5. a theoretical max possible drop to Mo EMA26 (72) - in a couple of months
To be able to trade successfully you need to understand how timeframes influence price movements.
Here I'm using the Litecoin D1 chart to illustrate.
On a chart you can see 3 sets of EMAs from different timeframes with crosses marked by dots: 12 (aqua), 26 (purple), 50 (red), 200 (blue)
D1, W1, Monthly EMAs use thin, medium, and thick lines respectively.
Note: W1 and Monthly don't have EMAs 50 and 200 because there's not enough history, so there are less lines to watch
There are also 2 indicators: Historical Volatility and EMA Cross MTF Grid
The following relation between EMAs is timeframe specific:
- D1 EMA50 is roughly EMA12 of the W1 higher timeframe
- D1 EMA200 is almost exactly EMA26 of the W1 higher timeframe, but not quite
you can use such EMA approximations to avoid switching timeframes, for example, H1 EMA200 = H4 EMA50 or you can use my Multi SMA EMA MTF indicator.
Choose timeframes wisely: M15, H1, H4, D1, W1, Mo
Some people also use 195 min, 2H, 3H, 6H, 12H, 2D, 3D, 3Mo to watch how price propagates in between.
General Ideas of EMA Trading:
1) Make sure you're in a trend on the current and higher timeframe.
You will be more confident to set higher price targets when both timeframes are going in the same direction, and lower targets when the higher timeframe is in the opposite direction in correction.
When in sideways market:
- no trade high risk zone
- not every EMA cross up means an up trend. you can have a sideways market with multiple crosses negating each other (Litecoin Feb-Mar 2017). EMAs won't help you there.
- this is especially true for faster EMAs: 12,26. But on a Daily/Weekly even a faster EMA becomes relatively slow and therefore more reliable because a lot of effort goes into a single candle.
- use a series of multiple EMA crosses on cur/higher timeframes and EMA slopes to confirm the start of a move in a specific direction
- use Super Guppy/SuperTrend/PVT trend indicators to gauge trend
- use a series of higher highs/higher lows, 5 waves up etc - basic methods to establish that price is trending
- wait for a clear breakout with volume confirmation with 1-2 higher tf bar closes above R level, retest and follow through
- look at historical volatility, buy low (blue), sell high (red)
- use oscillators
- switch/trade higher timeframes that are in a trend
- switch/trade another asset
Keep In mind:
- Trading the trend on higher tfs (D1, H4) is simpler than on lower tfs with lots of noise and indecision, you have less everything: less noise, less outcomes, less lines to watch.
- Sideways trading/Scalping in general is not worth the time/effort - you will most likely lose your money to bots. This is high risk trading that only applies to small positions and requires attention, precision and lots of skill to be profitable.
- Trading large positions and portfolios requires higher liquidity and hedging and can be done using options or margin trading with 2 open positions in opposite directions on several exchanges.
Use margin/short only when you know what you're doing.
Always calculate R/R and fees. You can lose money on fees even when the trade was profitable.
if you trade low liquidity coins for pennies expect flash crashes with huge wicks and stop order execution only at the bottom - use stop limit instead.
Last, but not least: you don't want to become the market. If you buy up the whole asset - the price will go down, as there will be no more buyers (Oil, US History)
2) When in an up trend (Reverse is true for down trend)
You can observe the following price behavior on the chart:
- price is above EMA12 - up trend, likely to bounce at EMA12
=> aggressive: buy the dips with a stop loss
- price is below EMA12, above EMA26 - likely to bounce at EMA26 or next supporting EMA: EMA50 or EMA12 of the higher timeframe
=> conservative: buy the dips with a stop loss
- EMA12,26 cross down - correction/sideways/reversal - start of down trend => exit longs and/or short with a stop loss after the cross or on retest of EMA12
=> expect a sell off and possible retest of the closest EMA12,26,50 with further sell off
=> price tends to go all the way to EMA200, but can be stopped by the next supporting EMA50 or EMA12,26 of the higher timeframe in the same direction
- price is below EMA200 - correction/reversal that can propagate to/cause a correction/reversal on a higher timeframe
=> look for a series of EMA crosses/slopes in the direction of a new trend on both cur/higher timeframes
- further 2x2 crosses down EMA12,26 x EMA50,200 - additional confirmation of the trend change
=> expect a sell off and possible retest of EMA50,200 with further sell off
- further 2x2 crosses down EMA12,26 x EMA12,26 of the higher timeframe - additional confirmation of the trend change
=> expect a sell off and possible retest of the closest EMA50 or EMA12,26 of the higher timeframe with further sell off
- when both cur/higher timeframes have the same direction, expect a bounce at the first touch of the EMA12,26 of the higher timeframe with a move higher
as sloping of EMA12,26 of the higher timeframe starts to decline expect lower bounces/sideways
the price will only break down when the sloping of the higher timeframe changes to down. Even if price breaks before that it will likely be bought up immediately with a huge wick
- when cur/higher timeframes have opposite directions, expect a rejection at the first touch of the EMA12,26 of the higher timeframe, price won't reach EMA200
as sloping of EMA12,26 of the higher timeframe starts to rise expect lower dips/sideways
the price will only break up when the sloping of the higher timeframe changes to up. Even if price breaks sooner it will likely to be sold into immediately
- you can gauge trend direction using sloping of W1 and Monthly high timeframes pretty reliably even without a cross because a lot of time/effort goes into changing it.
entries:
- on a EMA12x26 cross up or after on retest of EMA12
- on a 2nd EMA12x26 cross up after the price dips below and bounces at EMA26 to regain EMA12 support
- after a change of slope up/cross up on a higher timeframe
- on low volatility (blue, zero) - open position in the direction of a trend.
If both cur/higher tf trends are up - long, down - short.
If they have opposite direction use the direction of the cur tf trend and lower targets.
exits:
- agressive exit when EMA12 changes slope to flat/starts declining
- conservative exit on EMA12,26 cross down
- at a major resistance/EMA above: EMA200 or first touch of EMA12 of the higher timeframe
- on high volatility (red)
Notes:
- you don't need EMA50, EMAs 12,26 and EMA200 will be enough, but you can use EMA50,200 golden crosses for additional confirmations
- Monthly EMA12 has just slightly dipped below Monthly EMA26, stayed there for 2 months and broke back up - that's how we averted the 2019 crisis. Bottom's in
- Timeframes on EMA Cross MTF Grid are from top to bottom: Mo, W1, D1, H4, H1. As you can see, Monthly, W1, D1 are smooth green while H4 and H1 are choppy and filled with crosses/noise.
- EMA Cross MTF Grid crosses are lagging 1 bar, Crosses on EMA curves are also lagging due to smoothing enabled
___________________________________________________________
All EMAs are fanning up with corresponding EMA sets above each other - W1 EMA26 is crossing Monthly EMA12 => up trends on all H1,H4,D1,W1,Mo timeframes
Based on all this you can expect for Litecoin:
1. up trend for coming weeks with quick dips to D1 EMA12 (128) or EMA26 (119) that will be bought up immediately
Only after EMA12,26 cross down in a couple of weeks (EMA targets will move higher):
2. a larger drop to W1 EMA12 (105) which is already above the major 100 horizontal support - that will be bought up on the first pass
(after the first cross the price will likely regain support of EMA12, cross back up and go higher)
3. on a major correction at some point a further drop to Mo EMA12 (81) that will again be bought up on the first pass
4. on W1 EMA12 slope change to down - a final drop to EMA200 (77) or possibly below (stop loss wick hunt) that will again be bought up on the first pass
5. a theoretical max possible drop to Mo EMA26 (72) - in a couple of months
Comment:
screen for reference:
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proper chart with all monthly EMAs and W1 EMA50 enabled:
Comment:
On Ethereum W1 EMA12,26 need both to cross W1 EMA50 and EMA12,26 Monthly for proper alignment, but the trend is already up as everything is sloping up.
you can expect a max drop only to W1 EMA26 (207) and to Mo EMA12 (245) in the future after the crosses. Note that ETH EMA12,26 Monthly almost touched without crossing down making a curved bottom - that's how we averted the 2019 crisis.
you can expect a max drop only to W1 EMA26 (207) and to Mo EMA12 (245) in the future after the crosses. Note that ETH EMA12,26 Monthly almost touched without crossing down making a curved bottom - that's how we averted the 2019 crisis.
Comment:
same chart for Ethereum
Comment:
Bitcoin is also in an up trend fanning up on all timeframes up to W1. Monthly is curving up. Note that BTC EMA12,26 Monthly almost touched without crossing down making a curved bottom like ETH - that's how we averted the 2019 crisis.
Buy the dips at D1 EMA12 (8520) and D1 EMA26 (8175), D1 EMA50 (7600), W1 EMA12 (7400). You can expect a max drop only to W1 EMA26 - Mo EMA12 (6400) in the future after the crosses. This will be a buy opportunity of the year. Buying at Mo EMA12 (5700) will be almost impossible.
Buy the dips at D1 EMA12 (8520) and D1 EMA26 (8175), D1 EMA50 (7600), W1 EMA12 (7400). You can expect a max drop only to W1 EMA26 - Mo EMA12 (6400) in the future after the crosses. This will be a buy opportunity of the year. Buying at Mo EMA12 (5700) will be almost impossible.
Comment:
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That's why the 2015 Bear Market lasted longer, and the bull trap fractal was attempted but failed in 2019. Also last time we had a confluence of D1 and W1 - the bull run started. Now we also have the Monthly.
Comment:
same chart for S&P SPX - bullish up trend with EMAs fanning up
Comment:
M15 EMA12,26 -> M15 EMA200 or H1 EMA12,26,50 -> H1 EMA200 or H4 EMA12,26,50 -> H4 EMA200 or D1 EMA12,26,50 -> D1 EMA200 or W1 EMA12,26,50 -> W1 EMA200 or Mo EMA12,26,50 -> Mo EMA200 or Y EMA12,26,50
D1 EMA50 -> W1 EMA12
W1 EMA50 -> Mo EMA12
Mo EMA300 -> Y EMA12
D1 EMA50 -> W1 EMA12
W1 EMA50 -> Mo EMA12
Mo EMA300 -> Y EMA12