How to trade EMA 12 / 50 crossovers?

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How to trade EMA 12 / 50 crossovers?

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How to trade EMA 12 crossovers?

Exponential Moving Averages (MA) help identify 1) price trends and 2) potential support and resistance levels.

Trading EMA (or SMA) crossovers is a foundational strategy for trend trading.

EMA crossover occurs when a short-term EMA (e.g. 12 day) crosses the long-term EMA (e.g. 50 day), either above (bullish, uptrend) or below (bearish, downtrend).

Trading EMA 12 and EMA 50 crossovers

You can read about differences between Simple Moving Average (SMA) and Exponential Moving Average (EMA), but in short, EMA puts greater weight on the most recent prices, and thus has less lag than SMAs.  Hence, EMA reacts quicker to price changes and provides an earlier trend signal than SMAs.

There are many moving average crossover trading possibilities (EMA 12/26, EMA 26/50, SMA 5/10, SMA 10/30, etc.).

Which EMA or SMA should you trade? 

It depends on how early or late you wanna be, and how many false signals you’re willing to work with. 

1. Using short term moving averages (5, 10, 12, 20, 26 periods) will result in detecting a trend early, with high profit potential, but with many false signals (i.e. lower winning rates). 

2. Using longer term moving averages (30, 50, 100, 200 periods) will result in detecting a trend later, when it’s more established, but perhaps with less upside potential left since you’re jumping on the trend a bit later.  However, you should get fewer false signals, hence a higher win rate.

You can improve your success rates (reduce false signals) by combining moving average crossovers with other indicators like MACD (momentum), RSI, and OBV, among others.  

altFINS allows you to compare EMAs.  For instance, you can find coins where 5-day EMA has crossed the 10-day EMA.  You can also indicate by how much (%) is the 5-day EMA above or below the 10-day EMA. You can also combine multiple EMA crosses (5/10, 5/20, 5/30, or 5/10, 10/20, 20/30, etc.) to strengthen the signal power of your screen.

To quickly and easily find cryptocurrencies with EMA or SMA crossovers, bullish or bearish (across 4 time intervals), check our Signal Summary page.  altFINS constantly scans over 1,500 altcoins to identify signals:

 

Signal Summary - EMA and SMA crossovers

 

We also recommend setting up Alerts for specific EMA or SMA crossovers.  See how here.

EMA 12 / 50 is a simple trend following strategy using moving average crossovers.

This strategy uses the 12 day and 50 day Exponential moving average (EMA).

Trading rules:

  1. Buy when EMA 12 crosses above EMA 50. Sell when EMA 12 crosses below EMA 50.
  2. Place a Stop Loss order (or Alert) below the prior low.
  3. Trade with overall long-term trend

You can set up a custom screen in altFINS to catch these opportunities by using these criteria:

  1. EMA 12 is above 100% of EMA 50 (i.e. cross above)
  2. EMA 12 is below 105% of EMA 50 (it’s a recent crossover and distance between the EMAs is small – 5% of less)
  3. Last Price is above 100% of EMA 12 (this ensures that EMA slope is still up)
  4. Volume ($) is above 100,000 (some min liquidity)

 

Below is a tutorial video on how to create this custom screen.

 

The great part about this approach is that it gives clear trade entry and exit signals. Often, timing trade exit (at a loss or profit) is the toughest part.  Here’s it’s clear: when EMA 12 crosses below EMA 50, or hits our Stop Loss level.

Let’s look at some past examples:

(note that our performance calculations use closing price one day after crossover day, to be conservative)

 

 

 

 

This strategy, like many others using indicators, has a weakness – it may lead to whipsawing.  That is, it may signal Buy only to signal Sell soon afterwards.  This happens in times of sideways consolidation. EMA crossovers work best in trending markets.

If you’re in an overall sideways market, you may want to drop down to a timeframe or two to do shorter term EMA crossovers (4h or 1h).

BCH is an example of where this strategy would get whipsawed in a sideways trading range, without catching a substantial uptrend.

 

 

 

EMA crossovers work on any timeframe (15 min, 1h, 4h, 12h, 1d).  You can use lower time frames for shorter trades and higher timeframes for longer.  Lower timeframe is more subject to noise and false signals, so it’s not recommended under 1h.

Also, ideally, only take LTF (lower time frame) trades in the direction of the HTF (higher time frame)

Also, the long term positioning of EMAs helps avoiding whipsaw trades (whether 14/50 EMA are above or below the 200 EMA on the daily chart).  200 day EMA is a good indicator of a long term trend.

For newbies, you can put the odds in your favor by only taking buys in an uptrend (aka “Buy the dips”) or sells in a long term downtrend (aka “Sell the pullbacks”).