Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

Visualizing 20 Day EMA

33 sec read

Are you trading/taking Buy or Sell decisions based on 20 day EMA. The below picture will tell you how 20 EMA is inefficient in picking up the trends.


The above Nifty chart plots the 20 day EMA line along with Buy and Sell Signals.

 
A Buy Signal(Green Arrow) is produced if the candle closes above 20 Day EMA
A Sell Signal(Red Arrow)is produced if the candle closes below 20 Day EMA

When there are too much of crowded mixed signals it is difficult to take the correct signal obviously we will fail to capture the correct trend. More over a sideways trend results in too much distortion in the signal.

If you are a believer of considering 20 day EMA as supports/Resistance for your trades then you need to rethink about modifying your strategy

Now visualize yourself Crossover of the Candle with 20 day EMA cant be the right strategy to trade/invest

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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17 Replies to “Visualizing 20 Day EMA”

  1. But this can happen with any average, why only 20 ema?

    If 20 ema is “inefficient” then which one is efficient?

    Besides, nobody is so naive to use only one average to generate buy sell signals.

  2. But you’ve not answered my question and instead you want me to take a look at all the idiotic blogs around!

    To repeat : why 20 ema is inefficient according to you? Why not 19 ema or 17 ema or 1900 ema?

    If you can’t answer then say that you don’t know and stop blogging and save your time as well as mine.

  3. @Epsilon Eridani

    luk brother these kind of manners are not expected here

    —“If you can’t answer then say that you don’t know and stop blogging and save your time as well as mine.- Epsilon Eridani”

    atleast Rajandran R jee is taking great efforts to answer to queries and share his knowledge in posts in his free times

    its very easy to point out others mistake or make bulley rather than develop something urs and contribute it

    so if u really have guts than try to make and maintain ur own blog and contribute what u know

  4. @Epsilon Eridani

    20 day EMA is just a very basic indicator. More over the middle line of the bollinger band is nothing but the 20 day EMA. Many of the traders are religiously following bollinger bands for their investments and even for intraday trades. Thats why i opted to visualize 20 day EMA.

    Here the motive is whether to trade on 20 day EMA alone or not and to visualize it on the screen which may not suit for those advance traders who are using sophisticated trading system/softwares. It is for those who are still struggling with the basics.

  5. Hi RR,
    Another wonderful study, thanks.
    Its nice to look into the intricacies, especially when 20ema is a very commonly followed one. It makes a good example for this analysis, like may be a 5 or 50ema, most adopted.

    I appreciate your presentation which are always unique in content, simplicity, approach and presentation.
    You have made so much contribution to the blogger and general community.

    Have a nice day!
    Best regards
    moh

  6. In bull market, enter with buy signal and exit with sell signal as per 20 EMA. Don’t go for short. Certainly you got handsome returns.
    regards
    s.ramkumar

  7. HI Rajandran,
    All indicators lag but degree of lag varies. Also no one method will always work everytime, when we follow a particular set up we choose one which we will be consistent with and which will will give us the best result. This system will also FAIL WHEN the market behaves differently.
    One another question IF everyone sells when RSI>80 and buys when it is <20 then we should all be getting the same results, at least for those who are using the RSI indicator, so is it like that?
    Hope to have a healthy discussion and thanks Rajandran for highlighting the above.

  8. significant moov happen sometimes at least for intraday any scrip cross 200 dma on eitherside. but how to scan scrips which is just near 200 dma

  9. Dear Rajandran

    Can you please teach me how to get that paintbar in a chart in amibroker like the one you have in your chart?

  10. as said in topic itself moving avgs are generally rigid since they are based on permanent numbers as in india mainly 21 38 51 100 and 200 are used and in japan people prefer 42, 89 ,135 like in different avgs like
    sma,ema,tema,dema,tma,lsma,wma,wildersMA,ama,dama,camrilla avgs or fibo avgs etc

    but the whole concept is that in all over world different ratios or sequences are being followed as per different indexs and metal exchanges
    so points to remember while finding a good moving avg is
    1 the momentum of prices must be calculated in it
    2 some weightage must be given to volume in sync with prices
    3 most imp – the market works on cycle span in bulls vs bears like for 3 years ,5 years and 8 years in which trends, moves and market dynamics change froquently so the moving avg must incorporate it all automatically instead of how much days need to get selected

    which many analyist achieved it by building moving avgs
    based on cos sin and tan function, via integrating rsi adx in judging moving avg directions or via intergrating optmizing and walk forward testing continous function by putting some dll functions in amibroker

    personnely i find adaptive moving avg good for me

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