6 Tips For Using The 50 EMA
It is no secret I’m a big fan of using the 50ema as a dynamic support/resistance zone.
So here are 6 advanced filters I personally use to boost the effectiveness of 50ema support/resistance.
1. Don’t use it as a stand-alone indicator. The strength and effectiveness of 50ema support/resistance varies, depending on market condition! Just like other forms of support/resistance, the 50 is NOT a concrete wall that rejects price every time. In trading, we never have the luxury of those kinds of certainties… but by analyzing what’s happening in the market, in conjunction with the 50ema, you may certainly increase your strike rate. Never trade off an EMA when price itself hasn’t shown signs of deceleration at the line.
2. Market momentum is the first thing I look for. In my personal routine, this means looking at the daily chart and trading in line with my DDP’s (Daily Direction Predictions) in the first 3-4 days of a run. After that, momentum usually slows down, 60-minute MACD divergence often starts to form. This is when I’m no longer interested in 60-minute chart 50ema rejections.
3. Recent respect is the next thing I look for. If price has just bounced off the 50, it is more likely to reject price in the near future!
4. A trend is the next thing I look for. The 50ema will always provide a stronger level of support/resistance if the market is trending. In general, EMA’s are not as effective in choppy, range-bound market conditions. During those conditions, a more effective indicator (if you must use one at all) would be envelopes and bollinger bands (Though, I don’t personally need or use them).
5. EMA direction is the next thing… If it’s pointing UP or DOWN, it’s an indication that the market is trending… This is when the 50ema will be strongest. If it’s pointing SIDEWAYS, it’s an indication the market is ranging. This is when the 50ema will be weakest. Looking at the direction of the EMA is a lower quality method than observing price itself. Remember, indicators are always providing lagging information.
6. Choppiness. I never take a 50ema rejection if the market is choppy. During these conditions, the indicator is not producing the quality of data that is required to provide a reliable support/resistance line that the market will react to. The alternative to market chop is a visibly oscillating market that is clearly cycling between unsustainable optimism and unjustified pessimism in the collective market mind.
Visibly oscillating markets create prime trading opportunities to the intelligent trader who is able to transcend the emotional oscillations of the market cycle and act objectively.
I use this advanced 50ema analysis as the basis of my personal trading style “The Lewis Mocker Method”. Within this strategy, I use 3 timeframes, and very precise 50ema formations to trade high probability runs during the Power Move period of the day.