{"id":4179,"date":"2014-09-11T08:28:58","date_gmt":"2014-09-11T12:28:58","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=4179"},"modified":"2022-04-06T15:05:03","modified_gmt":"2022-04-06T19:05:03","slug":"20-ema-indicator","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/20-ema-indicator\/","title":{"rendered":"Here&#8217;s An Excellent Way To Quickly Measure The Strength Of A Rally"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright size-medium wp-image-4184\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2014\/09\/measuring-stick-300x225.jpg\" alt=\"measuring-stick\" width=\"300\" height=\"225\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2014\/09\/measuring-stick-300x225.jpg 300w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2014\/09\/measuring-stick-110x82.jpg 110w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/>In a <a title=\"How To Improve Your Stock Pick Win Rate With Intraday Moving Averages\" href=\"https:\/\/www.morpheustrading.com\/blog\/improve-stock-pick-win-rate\/\" target=\"_blank\" rel=\"noopener\">recent blog post<\/a>, I explained and illustrated\u00a0how intraday moving averages can be used to\u00a0improve your stock picking accuracy.<\/p>\n<p>Since I received a lot of positive feedback on\u00a0that post, I penned this follow-up\u00a0article to build on that mini-lesson by drilling down to focus on<em>\u00a0just one<\/em>\u00a0intraday moving average in particular.<\/p>\n<p>This <strong>incredible intraday indicator<\/strong>\u00a0helps you quickly and easily do three things well:<\/p>\n<ol>\n<li>Measure the true momentum of a rally in any stock, ETF, or index<\/li>\n<li>Remain confident when holding stocks pulling back from their highs (to reap greater trading profits)<\/li>\n<li>Assists you in knowing exactly where to set protective stop prices with\u00a0your trending swing trades.<\/li>\n<\/ol>\n<p>Want to know more?<\/p>\n<p>Just read on to discover\u00a0the <strong>power of the 20-period exponential moving average on the hourly chart<\/strong> (hereinafter <em>20-EMA<\/em>).<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/20-ema-indicator\/#Amazingly_Quick_and_Effective_Check\" >Amazingly\u00a0Quick and Effective Check<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/20-ema-indicator\/#Shakeout_Or_Breakdown\" >Shakeout Or Breakdown?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/20-ema-indicator\/#Show_Me_Dont_Tell_Me\" >Show Me, Don&#8217;t Tell Me<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/20-ema-indicator\/#A_Closer_Look\" >A Closer Look<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/morpheustrading.com\/blog\/20-ema-indicator\/#Short-term_Shakeouts\" >Short-term Shakeouts<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/morpheustrading.com\/blog\/20-ema-indicator\/#Another_Tool_In_Your_Arsenal\" >Another Tool In Your Arsenal<\/a><\/li><\/ul><\/nav><\/div>\n<h3><span class=\"ez-toc-section\" id=\"Amazingly_Quick_and_Effective_Check\"><\/span>Amazingly\u00a0Quick and Effective Check<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Over\u00a0the years, I have found the 20-EMA\u00a0to be an excellent tool for assessing just how bullish any\u00a0rally really is\u00a0(the 10-<em>day<\/em>\u00a0MA\u00a0also works in a similar fashion).<\/p>\n<p>Simply put, it is tough to question the strength of a rally when the price of a stock\/ETF\/index is steadily\u00a0trending higher <em>and\u00a0<\/em>above a rising 20-EMA.<\/p>\n<p>It works so well that I am confident (but never backtested) that you have <strong>at least\u00a0a 50% chance of a winning trade<\/strong> if you buy\u00a0a stock exclusively\u00a0because it is\u00a0trending higher while holding above its 20-EMA on the 60-minute chart.<\/p>\n<p>Such price action shows the <strong>bulls are clearly in control.<\/strong><\/p>\n<p>Conversely, a slip below the 20-EMA within a rally is frequently a warning signal of a possible correction by time or price.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Shakeout_Or_Breakdown\"><\/span>Shakeout Or Breakdown?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>If the move below the 20-EMA\u00a0was just a minor <a title=\"What is a shakeout?\" href=\"https:\/\/www.yourdictionary.com\/shakeout\" target=\"_blank\" rel=\"noopener\">shakeout<\/a>, then the price action should reclaim the 20-period EMA within a few hours to a few days, or at the very least set a higher swing low below the 20-EMA.<\/p>\n<p>Smaller shakeouts will usually recover back above the 20-EMA within a few hours, which causes\u00a0the 20-EMA to flatten its trend, but avoiding rolling over.<\/p>\n<p>However, when volatility picks up and there is a severe breakdown below\u00a0the 20-EMA (1% or more for an index, 2% or more for a stock), the 20-EMA will usually break its uptrend and roll over.<\/p>\n<p>Accordingly, \u00a0price action frequently becomes quite volatile, with multiple crosses above and below the 20-EMA over the next few days.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Show_Me_Dont_Tell_Me\"><\/span>Show Me, Don&#8217;t Tell Me<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Rather than rambling on about the specifics of the relationship between price action and the 20-EMA, it is better to show you a few annotated charts that do all the talking.<\/p>\n<p>Below are three hourly charts of the NASDAQ Composite, spanning from mid-May of this year to the start of September.<\/p>\n<p>On each chart that shows several weeks of trading within an uptrend, pay close attention to how the price action reacts as it comes into contact with the 20-EMA:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/140908COMPX1.png\" alt=\"$NASDAQ HOURLY CHART 20EMA  \" title=\"\"><\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/140908COMPX2.png\" alt=\"$NASDAQ HOURLY CHART 20EMA  \" title=\"\"><\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/140908COMPX3.png\" alt=\"$NASDAQ HOURLY CHART 20EMA  \" title=\"\"><\/p>\n<h3><span class=\"ez-toc-section\" id=\"A_Closer_Look\"><\/span>A Closer Look<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>When you learn how to interpret subsequent price action that follows the touch of\u00a0a\u00a020-EMA, this stellar indicator can be used by swing traders as the <strong>proverbial &#8220;line in the sand&#8221;<\/strong> for knowing whether or not a trend is maintaining very bullish momentum.<\/p>\n<p>For example, a break below the 20-EMA, followed by sideways price action, and then a return back above the 20-EMA (while it trends sideways) is merely a shakeout that should not bother a trader who is seeking bigger gains with a longer holding period.<\/p>\n<p>This type of shakeout price action is shown as point &#8220;A&#8221; on the hourly chart of Tesla Motors ($TSLA) below:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-4181\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2014\/09\/140909TSLABLOG.png\" alt=\"$TSLA hourly chart\" width=\"800\" height=\"727\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2014\/09\/140909TSLABLOG-110x100.png 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2014\/09\/140909TSLABLOG-300x272.png 300w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/><\/p>\n<p>At point &#8220;B&#8221;, there is a much clearer violation of the 20-EMA, which causes the moving average to roll over as well.<\/p>\n<p>Yet, if you are a\u00a0swing trader looking to maximize profits, holding onto a winning position through a break of the\u00a020-EMA is a necessity; otherwise you will continuously cut your profits short.<\/p>\n<p>Even at point &#8220;C,&#8221; $TSLA is once again under pressure with a nasty break of the 20-EMA.<\/p>\n<p>However, after the initial sell-off finds traction, the price quickly reclaims the 20-EMA the next day and pushes higher (which is exactly what I like to see).<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Short-term_Shakeouts\"><\/span>Short-term Shakeouts<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Whenever a stock or index breaks down below the 20-EMA and quickly finds support, the price action should\u00a0snap\u00a0back above the 20-EMA the next day (points &#8220;A&#8221; and &#8220;C&#8221;) <em>OR\u00a0<\/em>at least\u00a0form a &#8220;higher low&#8221; on the hourly chart the next day (point &#8220;B&#8221;).<\/p>\n<p>Short-term shakeouts, such as those shown at\u00a0points &#8220;A&#8221; and &#8220;B,&#8221; <strong>tend to last an average of just 1 to 3 days.<\/strong><\/p>\n<p>But if a stock or index trades below the prior day&#8217;s low (on the next day following a break of the 20-EMA) and continues lower after the first opening hour, the price action\u00a0may be headed for a deeper correction that could lead to a longer consolidation period.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Another_Tool_In_Your_Arsenal\"><\/span>Another Tool In Your Arsenal<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Despite my previous implication that a trader may even be able to be profitable using the 20-EMA along, you should <em>not<\/em>\u00a0look at the 20-EMA on the hourly chart as some kind of magic indicator that will instantly cause you to become the greatest trader in the world.<\/p>\n<p>Rather, the 20-EMA is a very helpful tool, just like several other reliable technical indicators used in the stock and ETF trades of my nightly\u00a0swing trading newsletter (<strong><a title=\"Sign up for The Wagner Daily\" href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\">try it risk-free<\/a><\/strong> for the first 30 days).<\/p>\n<p><em>Any<\/em> indicator that helps remove human emotion from a swing trade ultimately increases your trading profits, and the 20-EMA on the hourly chart certainly fits the bill.<\/p>\n<p><em>I would love to hear YOUR\u00a0thoughts about the 20-EMA. What do you think? Drop me a comment below.<\/em><\/p>\n<div class=\"cfmonitor\" style=\"padding-top: 30px;\"><center><script src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\" async=\"\"><\/script><!-- Footer of content - Large --> <ins class=\"adsbygoogle\" style=\"display: inline-block; width: 336px; height: 280px;\" data-ad-client=\"ca-pub-7565144363001883\" data-ad-slot=\"6017996961\"><\/ins><script>\/\/ <![CDATA[\n(adsbygoogle = window.adsbygoogle || []).push({});\n\/\/ ]]><\/script><\/center><\/div>\n","protected":false},"excerpt":{"rendered":"<p>In a recent blog post, I explained and illustrated\u00a0how intraday moving averages can be used to\u00a0improve your stock picking accuracy. Since I received a lot of positive feedback on\u00a0that post, I penned this follow-up\u00a0article to build on that mini-lesson by drilling down to focus on\u00a0just one\u00a0intraday moving average in particular. This incredible intraday indicator\u00a0helps you [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":4181,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-4179","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4179","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=4179"}],"version-history":[{"count":1,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4179\/revisions"}],"predecessor-version":[{"id":11304,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4179\/revisions\/11304"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media\/4181"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=4179"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=4179"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=4179"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}