Swinging Toward and Away from the 20 Day EMA

Jan 30, 2017: 3:34 PM CST

When setting up your trades, it’s helpful to put them within the context of the trend and key moving averages.

Let’s take a look at how we successfully called the current swing “down toward” the rising 20 day EMA, highlight two recent examples, and plan the immediate future for the S&P 500.

Here’s a quote from Friday’s in-depth strategy report for members:

We’re now seeing TWO reversal candles hanging (holding) at the upper Bollinger Band as price is extended almost 30 points above the rising 20 day EMA.

We thus favor a steeper PULLBACK toward the rising 20 day EMA as per our intraday chart and negative divergences.

And that’s exactly what happened today!

Here’s the Daily Chart with the 20 (green) and 50 (blue) day Exponential Moving Averages in play:

The general principle states that price will swing up and down as it builds a trend.

Simply stated, price tends to swing “up away from” the rising 20 day EMA “toward” the upper Bollinger Band, and then eventually “down away from” the upper Bollinger Band back “toward” the rising 20 day EMA.

This logic only applies to persistent uptrends, not trading ranges.

We can see this logic take place in November with a swing higher, pullback toward the 20 EMA, further swing higher in December, additional pullback at the end of December, and the current rally higher into January with today’s pullback lower at the end of the month.

We have a specific strategy for trading “perfect pullbacks” you can study with our lesson bundle.

In the lesson series, we describe how to identify uptrends objectively, what indicators to use (beyond these), how to trade a pullback set-up, and how to manage open positions.

However, I wanted to demonstrate the concept of framing your trades in terms of movement “toward” and “away from” key pivots and indicator levels.

What’s next?  Another rally “up away from” the 20 day EMA or perhaps a breakdown and movement “toward” the rising 50 day EMA?

Frame your trade in terms of what happens next during the departure from the 20 day EMA were we are now.

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Corey Rosenbloom, CMT

Afraid to Trade.com

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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).”

2 Comments

2 Responses to “Swinging Toward and Away from the 20 Day EMA”

  1. Market Surging Back to the Highs Update Feb 3 | Afraid to Trade.com Blog Says:

    […] the membership and on the blog, I highlighted the greater odds for another bounce up off the rising 20 day EMA on a bullish pathway toward the prior high… which is indeed what occurred this […]

  2. Emini Pulling Back from the Highs Trade Planning Feb 6 | Afraid to Trade.com Blog Says:

    […] the membership and on the blog, I highlighted the greater odds for another bounce up off the rising 20 day EMA on a bullish pathway toward the prior high… which is indeed what occurred this […]