The 20 ema is used by most institutions, banks, funds and big boys as part of their trading. Some use it with the cross of another MA or MAs as a system. Many of the little guys (us) use the 20 ema in some form or other in our trading. Some professional traders use the price and 20 ema as their method by buying a close above the 20 ema and selling a close below the 20 ema (don’t try this at home, as they say, as the Professionals also use filters to avoid whipsaws and “false” moves).
For consistency all charts posted on this website will display the 20 EMA in RED and the 50 EMA in BLUE
To a certain extent, the use of the 20 ema becomes, like Fibonacci retracements, a self fulfilling prophecy.
Our use of the 20 ema is not as a trigger in any shape of form,
but as one of the tools to help us in our decision making process. It should never be used in isolation and never be taken as “the last word”.
Think of the 20 ema as equilibrium, or the balance line which is the point at which buyers and sellers AGREE on price. Remember we are dealing with energy both of the market and its traders. Energy ALWAYS seeks balance through the path of least resistance. If you haven’t done already, you should study thousands of charts (daily and up) with the 20 ema and 50 ema moving averages on and note several things:
The slope of the averages The cross of the averages Price relative to the averages
You should also take note:
What the market is doing when the 20 ema is flat
What the market is doing when the slope is up AND how STEEP that slope is