One of the simplest and easiest to use trading strategies is the 3 moving average crossover strategy.
With the 3 moving average crossover strategy you can quickly identify a trend and how strong the trend is and find both long and short trades. You can use this strategy in all different market types and you can also use it on longer and shorter time frames.
In this post we go through everything you need to know about the moving average crossover strategy and how you can start using it in your own trading.
Table of Contents
What is an EMA?
There are two popular types of moving averages;
#1: Simple Moving Average (SMA)
#2: Exponential Moving Average (EMA)
The reason the exponential moving average or EMA is so popular with many traders is because it focusses more on the recent price than the simple moving average does.
Where the SMA is just averaging the price out over a certain period, the EMA adds more weight into the recent price when forming.
In this post we use and concentrate on the EMA for our trading strategies.
What is an EMA Crossover Strategy?
With an EMA crossover strategy we are using multiple exponential moving averages.
The reason we use multiple moving averages is to gain a better insight compared to what we do when only using one moving average.
One moving average can smooth out the overall price action and give us a good indication of the overall trend. However, when using multiple moving averages we can start to gauge a trends strength and also find trading opportunities.
In the example below, we are using the 8 and 21 period EMA’s. When the faster moving 8 period EMA moves above the slower moving 21 period EMA we know that price is looking to trend higher. When we see the EMA’s start to widen away from each other we can then start to see this trend and new move higher is gaining momentum.
Triple EMA Crossover Strategy
This is one of the simplest and easiest to use strategies you will find. You can trade it in all different types of markets and on all of your time frames.
When using the triple EMA crossover strategy you are adding three EMA’s to your chart.
In the example below we are using the 10, 21 and 50 period exponential moving averages.
The 50 period acts as the longer term moving average. The 21 period is the control and the 10 period is the faster acting moving average.
When using the triple crossover strategy we are looking to see where and how the EMA’s cross.
In the example below the fast moving 10 EMA moves below the 21 EMA. When we see this we know that a new move lower could be on the cards. When we see both the 10 and 21 period EMA’s move below the 50 period EMA the move lower is confirmed. This is when we would start to look for short trades and ride the next move lower for profits.
8, 13, 21 EMA Strategy
This EMA strategy is very similar to the triple crossover, but the periods of the EMA’s you are using are different.
These EMA’s are faster reacting moving averages which means that they will be a lot closer to the price action.
These are the three EMA’s you would use if you like making many trades and are more inclined to use strategies like scalping where you are in and out of the markets quickly.
In the example below the 8, 13 and 21 period EMA’s have been added to the chart. When we see the 8 EMA cross above the 13 EMA and then both these EMA’s cross higher above the 21 period EMA we would start looking for long trades. We would then look to profit from the next move higher.
3 EMA Crossover Indicator MT4
Whilst the 3 EMA crossover strategy is very easy to use and trade when you know how, it can still be very time consuming to add the indicators to your charts and monitor for crossovers.
This is where a custom built indicator comes in very useful.
This free indicator does not mess up your price action charts by adding moving averages everywhere, but gives you clear colour blocks to tell you if there is a crossover in play.
You can get the free 3 EMA Crossover Indicator for MT4 Here.
Moving Average Crossover Alert Indicator for MT5
This is a very useful free indicator from Earn Forex that will send you alerts if the moving averages you have set up have crossed over.
You can choose to get these alerts directly on your trading charts, to your email or even mobile phone.
This is a free indicator that can be downloaded for MT4 or MT5.
You can get the moving average crossover alert indicator for MT5 Here.
Note: Don’t know how to install and use these indicators? Read How to Download, Install and Use MT4 and MT5 Indicators.
EMA Crossover Screener
This moving average crossover screener will scan your charts and send you alerts when certain moving averages have started crossing over.
This is an advanced moving average crossover scanner that comes with some very useful features. This indicator is not free, but it does come with a free demo that you can try to see if you like it.
You can read about and test the EMA crossover screener here.