Today we are reviewing again the EMA, and its counterpart, the Bouncer.
The EMA Setup is one of the easiest to learn and trade ; it only uses an EMA ( Exponential Moving Average ) and a Fixed Envelope.
The EMA is included on all Platforms, including Ninjatrader.
The Fixed envelope are 2 lines located at a fixed distance from the EMA, one above and the other below.
Most of the Platforms include it. And on Ninjatrader we can get a free version here TIS_EMA_Envelope_Free
On the folowing examples the NEW custom indicator TIS_EMA_V6 will be used
On this example chart we can see an EMA Setup with Neutral Offset.
The EMA is not shown, only the Envelope around it (gray light lines).
When the price touches the Upper Envelope, the trend is Up and the bars are painted in blue.
The Entry Price is at EMA + Offset.
The Blue Points are the Entries, which are located over the EMA because offset is null.
The arrows show the moment where there is an Entry ( compatible with Markers System )
On the next Chart we can see an example with Positive Offset
The Entry Price, shown by the blue dots are over the EMA, at a distance in Ticks equal to Offset.
The type of Order to enter the Market on this Setup is Limit ;
As soon we get a blue dot, we must place a Buy Limit Order over the Blue Dot, and we must update the Entry Price Order each time a blue dot is placed at a different Price.
With the same logic, we can also use a negative offset, being the Entry Price then, below the EMA
As we commented at the start of the post, inverting the logic we have a new Setup that we have already commented in the past ; The Bouncer.
The new version 6 of the Indicator TIS_EMA_V6 has an input parameter to invert the logic as shown on the following picture :
Bouncer Examples :
Using a positive offset we can trade a return of the Market to the EMA after an enough deviation to touch the Envelope :
Using a negative or null offset on this Setup is useful to trades EMAs with bad response to bounces, producing breaks through the EMA most of the times.
As explained on previous posts, if we calculate the performance of trading bounces over an EMA and create a chart of the PnL against the period, we get a Performance Profile Chart (using always the same fixed target and stop)
Usually this profile is composed by a well defined series of peaks and lows.
If those peaks are positive, then those points represent the periods of the EMA to use on profitable EMA Setups
If the Lows are negative, then those points represent the periods of the EMA to use on the Bouncer Setup.
Some times, all the peaks and lows are on the positive side. On those cases there are no successful Bouncer Setups.
If all the peaks and lows are on the negative side, then there is no profitable EMA Setup.
Another point to take into account are the Commissions, because the number of trades depends on the period of the moving average to trade. If possible, we should include the commissions in the report before generating the chart.
More Related info on the Following Links :
- Trading a Moving Average
- PM_EMA Strategy for NinjaTrader - Setup Review
- PM_EMA_Bouncer Strategy for Ninjatrader
- PM_EMA_Bouncer Strategy for Ninjatrader Update