First off, an Exponential Moving Average (EMA) is a moving average indicator that gives more weight to recent price data, making it highly responsive to changes in the market.
The 9 EMA calculates explicitly the average of the last nine closing prices, giving you a line on your chart that tracks the recent price trend with greater sensitivity. With it, you can catch a short-term trend direction or even other minor trends during a major trend.
On a price chart, the 9 EMA is displayed as a single line that oscillates above and below the asset’s price action.
Generally, the 9 EMA has a huge body of followership among many moving average traders and day traders. This is because it offers the perfect balance between the past and the present. Since it takes 9 periods into consideration, it offers just enough insight into historical data. And because it’s an EMA, placing more emphasis on the most recent periods helps you react quickly to market shifts. It wouldn’t be a lie to say that the 9 EMA is among the most commonly used exponential moving averages, particularly among short-term traders.
Technically, the 9 EMA can be used without any other technical indicator. When it is used in isolation, the technique is pretty simple. When the 9 EMA line crosses above or below the asset’s price, a signal is made. And that is definitely a strategy!
However, there are other more sophisticated and accurate techniques to use the 9 EMA. Those mainly include adding another EMA indicator or volume and momentum indicator and looking for a crossover.
Popular EMA Crossover Trading Strategies
Now, let us consider two popular 9 exponential moving average crossover trading strategies that can help you make informed trading decisions. As a general rule, the relative position of the 9 EMA with other moving averages will determine what following step to take. This section discusses the 9/30 EMA, 9/20 EMA trading methods.
9/30 EMA Trading Strategy
Mike Burns developed the 9-30 trading strategy. It involves deploying two moving averages to catch trend continuations. The first is the 9-period Exponential Moving Average (EMA), and the second is the 30-period Weighted Moving Average (WMA).
To get your trading setup, ensure the 9 EMA crosses above the 30 WMA and that there’s a noticeable wide gap between both of them. The first thing you want to spot is your retracement. And this comes when a candle crosses the 9EMA. In a bearish trend, this would be a bullish candlestick crossing the 9EMA. And in a bullish trend, it would be a bearish candlestick crossing the 9EMA.
For buy and sell signals on the 9-30 trading strategy, wait for a candlestick to close above the high of your retracement candlestick in a bullish trend. The close of that candlestick is your entry. For a bearish trend, you want a candlestick to close below the low of the retracement candlestick, where you’ll then place your sell order.
9/20 EMA Trading Strategy
This trading strategy is simple. You simply wait for the crossover between the 9 and 20 moving averages. When the 9 EMA crosses the 20 EMA to the upside, you have a buy signal. But when the 9 EMA crosses the 20 EMA to the downside, you have a sell signal. Simple as that.
How to Trade Using the 9 EMA Trading Strategy
Now that we have covered some different 9 Exponential Moving Average crossover trading strategies, let us consider an example of how to trade with the 9 EMA. In this example, the idea is to get on fresh trends in the 1-minute timeframe, and the trading rules are simple.
1. Trade Setup
Of course, the first thing to do is to launch your beloved 9 EMA on the 1-minute chart. After that, you want to spot notable areas of support and resistance or trend reversals. This is because these are areas where fresh trends originate.
For the sake of this example, we’re using the low and high of the previous day as our support and resistance levels. If the price breaks any of these levels, it could be the beginning of a new trend. However, you can choose any tool of your liking that predicts the start of a new trend.
2. Trade Entry
This is where your 9 EMA gets to work. After the breakout, you need the price to retrace to hit your 9 EMA line. The first engulfing candlestick back out in the direction of your trend is your trade entry.
In the example above, for instance, the price touches the 9 EMA line and forms a bearish engulfing candlestick pattern. That is your signal to sell.
3. Stop Loss
Your stop loss should be above the engulfing candlestick for a sell trade and below the engulfing candlestick for a buy trade.
4. Take Profit
You can place your take-profit order as soon as the market prints a Doji candlestick following a significant price movement. You may also use exit signals generated by other technical indicators and trading tools like Fibonacci retracement levels.
Source: HowToTrade, The 9 EMA - A Powerful Trading Strategy for Short-Term Traders, accessed 28 December 2023, <https://howtotrade.com/trading-strategies/9-ema/>