Moving averages are a fantastic tool for trend follower strategies, but what is the best EMA for 1-hour chart?
We use moving averages a lot in our systems, especially to filter the trend. For each time frame, we have our favorite Ema.
With an exponential moving average (EMA) indicator, the hourly chart is widely used by traders worldwide. This time frame is suitable for both intraday and multi-day trading.
With a series of practical examples, we will show you how to find the best moving average for each instrument on an hourly chart.
The Exponential Moving Average gives more weight to the latest prices; thus, it is much more reactive than a simple moving average.
The shorter the moving average period, the more the indicator will move nervously and stay close to prices.
From Investopedia: How Is the Exponential Moving Average (EMA) Formula Calculated?
As you know, the forex is open 24 hours a day, the sessions alternate, but the negotiations are continuous.
When choosing the best Ema in the 1-hour chart for forex, it is essential to consider what time you are using your indicator.
In fact, during the night, the market becomes flat, and there will be no significant movements with very low volatility.
The problem is that as soon as the European session starts, the market will start moving fast.
Imagine having your hourly chart with a five-period moving average and examining the market at 8 o’clock.
The moving average will not be giving you any information because the volatility that is about to arrive will differ entirely from the past one.
The 5-period exponential moving average of your hourly chart will refer to the movement of prices from 3 to 8 (London time).
Remember that an exponential moving average is calculated to give more weight to the latest prices, stressing the problem described above.
For this reason, on an hourly chart, adapt your exponential moving average to the time you are in.
The best thing you can do is to use a default 20-period average and adapt it to volatility.
- If the volatility of the instrument is high, increase the periods of the moving average.
- If the volatility of the instrument is low, decrease the periods of the moving average.
Let’s see some examples:
The perfect Ema in 1 hour chart for Eurusd
Eurusd moves with the opening of the London stock market at 08:00. In this example, we applied a 10-period moving average to the hourly chart.
We see that the Ema is standing very close to market prices. This is because, as we have seen during the night, volatility is absent in most cases.
As soon as the first exchanges with interesting volumes begin, the price moves quickly, crossing the ema.
Obviously, this signal will not have the same weight at 18 when the EMA refers to the previous ten periods with medium-high volatility.
Our advice, therefore, is to use a 20-period Ema, which, in our opinion, is the correct value.
The best Ema in 1 hour chart for UsdJpy
This example is related to UsdJpy; this cross is most active during the Asian session 02 am London time. So catching a trend early in the morning could be easier.
The best Ema in the 1-hour chart for UsdJpy is the 15-period exponential moving average because this cross is less volatile than EurUsd.
Even with this instrument, the market open 24 hours a day creates some problems because of the constant volatility changes.
The best Ema in 1 hour chart for Audusd
This cross is also more active during the night; often, there is important news that creates volatility.
It is possible to use a 15-period average on an AudUsd hourly chart for the same reasons as for UsdJpy.
Using EMA as a filter
Intraday trader. If you are an intraday trader, you will most likely operate on charts smaller than the hourly one.
Probably, however, you will always monitor an hourly chart to monitor the primary trend.
Remember that the primary function of a moving average is to give indications on the trend. An H1 chart with a 20 period EMA will give you a reliable sign of the trend’s direction.
To identify the trend quickly, you can use this rule:
- When prices are above the moving average, we are in an uptrend.
- When prices are below the moving average, we are in a bearish trend.
Insider Tips: You can get more information by analyzing the moving average slope, i.e., the angle of the moving average.
Using the indicator as a trend filter, the choice of a 20 period moving average is perfect for any instrument.
Multi-day Trader. If you are a multi-day trader on daily charts, you can use the hourly chart to perfect your entry.
Many traders prefer to use daily charts because they are much more reliable and less subject to the market’s nervousness.
But you can find better entry opportunities by using an hourly chart for market entry.
For example, you can use the intersection of two EMAs with different periods, one slow at 20 periods and one fast at five periods.
Always remember that the exponential moving average is a trend indicator that works well when a trend exists.
So if you see that the price often touches the moving average, it means that the market is not trending, and a trend follower strategy will not work.
The best EMA for 1-hour chart is a 20-period exponential moving average, but the value will have to be adapted according to the instrument’s volatility. For example, for EurUsd, it is preferable to use a 20-period moving average, while for UsdJpy, we prefer a 15-period average.