EMA Scalping/Day-trading guide
- All credit to Ripster for the EMA clouds
- I use EMA clouds intraday along with VPA to identify breakouts and trends quickly
o I still recommend using VPA and chart analysis on every trade
o I still identify support and resistance, supply & demand, watch volume, and mark out key daily levels even using these indicators. In this guide I took off all chart TA to highlight the EMA clouds, typically I would have DS/DR, zones etc.
o However, I do feel the EMA cloud system is a beneficial tool, especially for traders lacking confidence due to recent losses or traders who are newer, or traders who trade breakout and momentum plays.
- Ripster has many threads on twitter on how he uses the clouds. Because I use these primarily for short swings, day-trades, and scalps I adjusted the lengths to fit my trading style. Ripster uses a variety of lengths including 5/13 for his short trend and 34/50 for his longer trend. I would advise you to adjust the lengths to suit your trading style.
I first started using these to help me quickly scalp options intra-day on a 1 min timeframe. Which will be covered below. I now primarily use these on a 5 min time frame for short < 2 hour day trades or longer length day trades. I also use them when identifying breakout swings, I’ve found the shorter lengths catch momentum shifts as early as any indicator I’ve used.
1 Min Scalping Guide
Red/Green 5–9 EMA = Microtrend
Green/Grey 20–50 EMA = Macrotrend
Bullish is when the microtrend is green and above the macrotrend in this system
Shorting: Go short on close of first candle when the following are met:
A. Micro trend red
B. Macro trend grey
C. Micro channel BELOW macro channel
Close Short position on close of candle when the following are met:
1. Micro trend green
2. Micro trend above macro trend
3. Candle closes above macro trend
Ex: Arrow one entry, micro has crossed below macro both trends are bearish
Arrow two/three, caution microtrend looking like a reversal but channel hasn’t crossed
Arrow four channel now outside with candle close- close position
Go long on close on the first candle when the following are met:
1. Micro trend green
2. Macro trend green
3. Micro channel above macro channel
Close long position on close of candle when the following are met:
1. Micro trend goes red
2. Micro breaks macro trend
3. Candle closes below macro trend
Ex: Notice we are in consolidation, wait for the chop to stop and enter on a clear signal. Arrow one we now have a clear trend and entry, arrows 2–3 pull-backs but don’t be shaken out- low volume and NO trend change. Exit on arrow 4
Considerations:
- Still chart daily levels, watch HH/HL in trend for significant breaks
- If criteria are met and playing options wanting to enter, and the closing candle is a BIG widespread candle, wait 1–2 candles- you will notice very often within 1–2 mins you will get a retest of the clouds offering an entry point
- With options also lock SOME profits in on huge momentum candles
- Take some profits approaching DR/DS
- This method works better for entries and trend confirmations than exits, still have a PT goal prior to entry. Don’t wait for trend change to close, LOCK IN PROFIT
Other:
- I do not average up on options scalps due to momentum nature of short options plays with IV changes
- Consider, adding half position to start, average down x 1 on first candle that test macro trend and rejects
Sizing out: Size out half if THREE consecutive candles open and close outside the clouds with no wicks touch the clouds and are the same color IE green if long red if short -> this is a good indicator momentum is about to stop OR if 4 bars any color do the same. Ideally these are large spread candles, smaller spread candles I tend to closely look at volume before deciding
Examples
Entry on arrow 1, notice 3 bars outside of all trends for open/close, good sign we are about to slow down. Sure enough large hammer candle with big stopping volume
Caution using 4/3/ bar rule to go all the way out example:
Notice we have several candles fully outside both trends so you could exit half here, BUT we do get a further move which is why I always keep this rule in mind but don’t exit fully on it (but its good to keep it in your mind)
Intra day and day trade strategy:
5 min chart
For a tighter stop loss if you are unsure about your entry I advise the following, on a 5 min candle that happens as our microtrend changes (long or short depending on your position), set your stop-loss to the BEGINNING of that candle with a confirmed candle CLOSE above/below your stop-loss. For entries, you can do the following
Go long on the following:
- Micro trend green
- Optionally I like the microtrend to cross the macrotrend from below i’ve found this often too slow to catch the bigger move especially when playing options.
Exit:
- Full on micro trend reversal
2. Or 1/2 on candle close within macro trend (on a retest)and other half if micro trend reverse
Enter long on first arrow, 50.28 SL, notice we get good retests for scaling or entry after the initial candle. Nice move up through slower EMA clouds, before exiting on trend change at 51.04
Go short on the following:
- Microtrend red
2. Optionally. Ideally you want the microtrend below the macrotrend or the macrotrend grey- both of these plus the above adds accuracy to the impending move
Arrow 1, we have exited chop with a clear stop-loss at 625, strong move following clouds down before exiting at 603 on the microtrend reversal
Scaling:
1. Enter off the candle at a half position and add another half on the next candle to retest the cloud
2. Enter fully on the candle (this leaves you no scaling room)
3. Wait to enter for the cloud retest.
This stop-loss is what I have moved to using as it prevents big losses if you are in a choppy market.
Example:
Red arrow is your candle that breaks microtrend, the opening of this candle is 251.06 making this your SL. Notice we get nice retests immediately offering adds if you missed the initial move or at a lower price than the trend change candle. Also note we never CLOSE below SL. We get a nice move up, ideally you exit on the huge upper wick/volume if you miss this you can exit on arrow 4 and still catch most of the move