Using EMA Alignment as a Directional Trading Bias

Summary

This document describes a visual trend indicator built from 20, 50, and 100 period exponential moving averages. It marks a bullish bias when the 20 period average is above both longer averages, and a bearish bias when it is below both. The output is a colored bar, intended to make the directional state easy to scan. The author suggests using the signal as a filter alongside a separate entry method, such as a trendline break or another indicator, or comparing it across timeframes to see when a shorter timeframe returns to alignment with a longer one.

The document presents no market, timeframe, performance results, or backtest, so it does not establish that the filter is profitable. It is framed as most useful in trending conditions and does not specify an approach for neutral or mixed average alignment. Traders would need to define those cases, select entries and exits, account for risk, and evaluate the combined rules on their intended instruments before relying on the indicator.

Key ideas

• The indicator compares a short exponential moving average with two longer averages to assign directional bias.
• A bullish state requires the short average to exceed both longer averages, while a bearish state requires it to be below both.
• The colored bar is intended as a visual filter rather than a complete entry system.
• The author suggests checking alignment between shorter and longer timeframes.
• No performance evidence is provided, and mixed average alignment is not defined.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.