| Market | Crypto, Forex, Stocks |
|---|---|
| Timeframe | 1h, 4h, Daily |
| Indicators | 50 EMA, 200 EMA, ATR(14) |
| Style | Trend-following |
| Skill level | Beginner |
| Typical holding time | Swing |
| Risk per trade | 0.5–1% |
- Identifies trend direction using the 50 and 200 Exponential Moving Average (EMA).
- Enters on pullbacks aligned with the trend after confirmation.
- Uses ATR-based or swing-structure stop-losses for risk control.
- Exits by fixed R-multiples or a trailing stop adapted to volatility.
This approach aims to capture larger moves while ignoring short-term noise. The edge comes from following momentum after other participants have already established conviction. Works best in strong, clear-trending markets when volatility supports directional follow-through – typically during prolonged rallies or selloffs driven by macro catalysts.
Strategy Rules (Step-by-step)
Setup:
- Trend Structure: Price above 200 EMA for longs (below for shorts).
- Momentum Confirmation: 50 EMA above 200 EMA for longs (below for shorts).
- ATR Filter: ATR(14) above the 30-period ATR median, to avoid non-volatile chop.
Entry:
- Enter long on candle closing above the 50 EMA after a pullback that did not close below 200 EMA.
- Enter using a market order at close of confirmation candle.
Stop-loss:
- Set stop-loss 1.5 x ATR(14) below entry price (for longs; above for shorts) or just beyond the last swing low/high.
Take profit:
- Fixed 2R (twice the stop size) target, or exit part at 2R and trail remainder with 2 x ATR stop.
Trade management:
- Move stop to breakeven once 1R is reached.
- Optionally scale out half at 2R, trail the rest with a 2 x ATR stop.
Settings and Parameters
- Indicator settings: 50 EMA (short-term trend), 200 EMA (long-term trend), ATR(14) for dynamic stops.
- Timeframes tested: 1h, 4h, Daily.
- Assets tested: BTC/USD, ETH/USD, EUR/USD, AAPL, TSLA.
- Session/Hours: Focus on London/NY overlap for Forex; 24/7 for crypto; Regular hours for stocks.
When It Works vs. When It Fails
- Clear, directional price trends with strong momentum.
- Markets reacting to macro events/earnings/news.
- Minimal whipsaw; higher highs and higher lows dominate.
- Choppy, sideways, or range-bound markets where price frequently crosses EMAs.
- Sudden news spikes or random volatility surges leading to whipsaw stop-outs.
- Low ATR values indicating poor momentum.
Filters to Avoid Bad Conditions:
- Skip trading during scheduled major news (economic releases, earnings calls).
- Apply ATR filter: Only trade when ATR(14) above its 30-period median.
- Pause after a string of consecutive losses to reassess market state.
Risk Management (Beginner-safe)
- Position sizing: Never risk more than 0.5–1% of account equity per trade.
- Max open risk: Limit simultaneous trades so total open position risk ≤2%.
- Daily loss limit: Stop trading for the day if net loss exceeds 2R.
- Fees/slippage: Check typical spread/commission costs for your instrument; allow a small buffer in stops for slippage.
Example Trade (Walkthrough)
- Pair/Asset: BTC/USDT
- Timeframe: 1h
- Setup snapshot: BTC is trending up, price above 200 EMA, 50 EMA above 200 EMA. Recent pullback closes near but not below 50 EMA; ATR(14) is elevated.
- Entry: Enter long at $64,200 on 1h candle close above 50 EMA after a retracement.
- Stop-loss: $63,800 (1.5 x ATR(14) below entry; recent swing low).
- Take profit: $65,000 (2R target); trail remainder if partial exit at 2R, moving stop to BE at $64,600.
- Outcome: Price rallies to $65,000, partial profit booked at 2R; trailing stop catches a further move to $65,700 for the remainder. Total result: ~2.7R; review confirms the importance of volatility filter for optimal setups.
Pros and Cons
- Simple, clear-cut rules for entries and exits.
- Scales well from manual to automated execution.
- Emphasizes risk control on every trade.
- Builds trading discipline and confidence over time.
- Susceptible to false breakouts and whipsaw in ranges.
- Drawdowns can be prolonged during non-trending phases.
- Misses early moves; can give back profits when trends stall suddenly.
Common Mistakes
- Chasing late entries on extended trends.
- Moving stop-loss too early or too far/too tight.
- Ignoring position sizing, over-leveraging.
- Trading during major news events without a filter.
- Neglecting to review historical performance in different regimes.
Tips and Variations
- Add a higher timeframe trend filter (e.g., Daily 200 EMA alignment when trading on 1h).
- Use ATR-based stop-loss rather than swing structure for more objective exits.
- Consider scaling out partial profits at 1.5R or 2R, rest with trailing stop.
- Set platform alerts for EMA crosses, ATR levels, or close-to-entry pullbacks.
- Systematize your journal to record each trade’s ATR, trend grade, and entry point.
Tools You Can Use
- Charting: TradingView, MetaTrader 4/5, Thinkorswim
- Screeners/Alerts: TradingView alerts, Finviz (stocks), CoinMarketCap (crypto)
- Journaling: Edgewonk, Notion, Tradervue, Google Sheets
- Backtesting: TradingView strategy tester, Amibroker, Python/backtrader
FAQs
- Does it work on crypto? Yes, but be extra cautious with volatility and avoid event-driven news spikes; best on larger, more liquid pairs.
- What timeframe is best? 1h and 4h are favored for balancing signal quality and frequency; daily for longer swings.
- What win rate to expect? Typically 35–50%, depending on market regime and filter strictness.
- Can I automate it? Absolutely; clear rules translate directly to bot code in TradingView or Python.
Glossary (Beginner terms)
- EMA (Exponential Moving Average)
- A moving average that gives more weight to recent prices.
- ATR (Average True Range)
- A measure of market volatility; larger ATR = bigger swings.
- R-multiple
- Profit or loss measured as a multiple of the original risk per trade.
- Drawdown
- The amount the trading account falls from its peak before making new highs.
Disclaimer: Educational only. Not financial advice. Past performance ≠ future results.