Today, I’m going to show you how to trade using the EMA indicator on IQ Option.
Besides being simple and effective, the EMA indicator puts more weight on the latest instrument prices. Therefore making it a prime tool for traders looking for opportunities to enter a trade just before a trend breakout.
Just like the other types of moving averages, EMA is not complicated be it when setting it up or when it comes to interpreting its signals as you shall see throughout this guide.
Before jumping to the signals, let’s cover the basics.
What is the EMA indicator?
EMA (Exponential moving average) uses an exponential formula to calculate averages of the most recent price movements and volatility of the selected instrument.
Consequently, unlike other types of moving averages, the EMA indicator is so sensitive to short-term price fluctuations, and therefore it’s crucial when identifying trend reversal points.
How does EMA indicator work on IQ Option?
Exponential moving average’ superpower lies in allocating more weight on the most recent prices, which means, using short-term EMA’ is highly sensitive and easy to use to catch a trend on time.
While you may see this as a blessing, there’s a catch.
EMA downside is that it does not filter out the price ‘noise’ and they’re most likely to give false signals. Do not fret though, later on, I will show you a way to avoid these false signals.
For now, let’s look at how to interpret the EMA indicator.
- When the instrument price is above the EMA indicator, it shows you that the market price trend is rising.
- When the price starts moving below the EMA, you know the market price trend in decreasing.
Pay attention to these signals to help you earn on IQ Option.
How to set up an EMA indicator on IQ Option.
Before we proceed, I should mention that the EMA indicator works best with Japanese candles charts. Make sure you are using them.
- Open your IQ Option account and click on the Indicators tab.
- Click on Moving Averages.
- And select Moving Average and a window will open.
- Select a period more than 10 (to get more accurate EMA results), then choose EMA as Type. The default color for the EMA indicator in IQ Option is orange, therefore, if you are okay with that, click on Apply to add EMA on your trading chart.
How to trade on IQ Option using EMA indicator (strategies).
EMA indicator is a powerful tool, and as such, you can use it to not only identify trends but also make confirmations before you invest anything on the platform.
I will be using 14 periods EMA and 28 period EMA to illustrate my points here.
Since these are two EMA indicators covering two different periods, you need to repeat the above process to add the same indicator twice.
Equally important, make each different colors to make it easier for your eyes.
For EMA 14, make it green. And for EMA 28, use yellow color.
How to trade on IQ Option using EMA 14 and EMA 28.
Why did we add the two EMAs?
Remember when I told you earlier that the EMA indicator doesn’t filter the price noise?
Well, you can offset this downside to a rather useful tool by combining two EMA indicators and use its crossovers as well as the distance between each other as trading signals.
It is simple:
- Whenever the EMA 14 crosses EMA 28 bottom-up and the distance between them is wide, it shows a strong uptrend momentum. Here, prices are above both indicators. Enter a buying position. As the distance gap narrows, the uptrend is losing momentum
- When EMA14 crosses EMA28 from above and the gap is wider, it’s a strong downtrend signal. prices are below the two indicators, and so you should sell your position.
You should know this though:
The market won’t always behave like described above.
In some instances, both indicators will run through the prices. When that happens, it means that the market is ranging and it is in your best interest to stay away till a trend develops.
Otherwise, if you are still looking for another best way to trade EMA indicator on IQ Option, continue below.
How to trade on IQ Option using EMA30.
Setting up EMA30 is simple.
Refer to the steps we’ve covered above and change the period to 30.
This is another commonly used EMA indicator because it works best in identifying impending trends.
As you can see in the example below, there’s a clear upward trend developing
But where exactly should I enter into the trade?
That’s a huge challenge for most traders. Luckily, that’s an issue that can be solved by EMA30.
Enter into the trade right where the EMA30 indicator crosses the price candle (bullish candle) from above and continues to run below the prices.
Where should I sell?
Sell where the EMA30 indicator crosses a bearish price candle from below and moves above the prices.
Summary of trading IQ Option using EMA indicator.
The EMA indicator is a perfect tool for identifying when a trend is developing and when a trend reversal is impending,
You can achieve this by just taking note of the moving average line in relation to instrument prices and right there you can learn whether there’s an uptrend or downtrend.
Additionally, once the EMA indicator crosses the price, that’s a trend reversal right there and you need to act accordingly.
If there’s one thing you should take from this guide is that:
EMAs with longer periods (more than 10) give better signal accuracy, thus making EMA indicators the best tool for trading longer time frames.
To this end, you should be confident now to add and trade with the EMA on IQ Option. Try it now on your free practice account.
Also Read: – How to Use Stochastic Oscillator to Trade on IQ Option.