EMA, Envelope & Bollinger bands for Trend Trade with Small SL
Updated
What is an EMA:-
An exponential moving average (EMA) is a moving average that measures the average price of a security and assigns more weight and meaning to the most recent data points. Compared to SMA, EMA responds more effectively to recent price changes and applies equal importance to all observations over the period.
What is an Envelope:-
Envelopes are technical indicators that are typically plotted over a price chart with upper and lower bands. The most common example of an envelope is a moving average envelope or an exponential moving average, which is created using two moving averages that define upper and lower price range levels.
What is an Bollinger Bands:-
A Bollinger Band is a technical analysis tool defined by a set of trendlines. They are plotted as two standard deviations, both positively and negatively, away from a simple moving average or an exponential moving average of a security's price and can be adjusted to user preferences.
Logic:-
We all have heard about Reversal trading based on "Bollinger Bands" and "Envelope" when upper and lower bands are far from the basis centre line. but these upper and lower bands can also be used for Breakout and Breakdown (Trend) trading with small/limited Stoploss.
Chart Timeframe:-
200 EMA is a standard EMA used by many traders and it can be used in any timeframe. 200EMA can be used in Envelope & Bollinger Bands also. I recommended to use it on 5 minute or 15 minutes chart on stocks or indices for intraday trading, on 4Hour or 1 Day chart on stocks for for Swing trading, on 1 Week chart on stocks for positional Trading.
//-------------------------------------------------------------------------------------------------------------------
Strategy 1:- (EMA high/close/low)
Three EMA's can be plotted with Length 200 for all three, but source different for all three high/close/low.
When price close above EMA (high) its a Breakout, Buy - keeping Stoploss as price closing below EMA (low) and Target as per 1:3 or 1:5 risk reward ratio.
When price close below EMA (low) its a Breakdown, Sell - keeping Stoploss as price closing above EMA (high) and Target as per 1:3 or 1:5 risk reward ratio.
//------------------------------------------------------------------------------------------------------------------
Strategy 2:- (Envelope - Upper Band/Basis/Lower Band)
Envelope can be plotted with Length - 200, Percent - 0.05 , Source - close, you may use Percent as per your risk reward and as per the setting which suits you. however i have used percent - 0.05 for 5 min and 15 minutes timeframe for intraday in index here in this idea.
When price close above upper band its a Breakout, Buy - keeping Stoploss as price closing below lower band and Target as per 1:3 or 1:5 risk reward ratio.
When price close below lower band its a Breakdown, Sell - keeping Stoploss as price closing above upper band and Target as per 1:3 or 1:5 risk reward ratio.
//-------------------------------------------------------------------------------------------------------------------
Strategy 3:- (Bollinger Bands - Upper Band/Basis/Lower Band)
Bollinger Bands can be plotted with Length - 200, Basis MA type - EMA , Source - close, StdDev - 0.3 you may use StdDev as per your risk reward and as per the setting which suits you. however i have used StdDev - 0.3 for 5 min and 15 minutes timeframe for intraday in index here in this idea.
When price close above upper band its a Breakout, Buy - keeping Stoploss as price closing below lower band and Target as per 1:3 or 1:5 risk reward ratio.
When price close below lower band its a Breakdown, Sell - keeping Stoploss as price closing above upper band and Target as per 1:3 or 1:5 risk reward ratio.
Note:- You may also keep Basis centre line as Stoploss in both Breakdown or Breakout trades but remember that in this case Stoploss will be smaller but will be more frequent as compare to the above situation when we are keeping upper and lower bands as Stoploss.
//-------------------------------------------------------------------------------------------------------------------
Like other technical indicators, These indicators also are not a holy grail. It can only assist you in building a good strategy. You can only succeed with proper position sizing, risk management and following correct trading Psychology (No overtrade, No greed, No revenge trade etc).
ABOVE SHARED EXPLANATION AND STRATEGIES OF EMA, Envelope, Bollinger Bands ARE ONLY FOR EDUCATIONAL PURPOSE ONLY. YOU MAY PAPER TRADE TO GAIN CONFIDENCE AND BUILD FURTHER ON THESE.
Coding Note:-
//you may do simple coding in tv to make an effective indicator with alerts using EMA/Envelope/Bollinger Bands.
//I feel Simple strategy or indicator is the best.
//As per me Indicator's are not good or bad. Its the Risk reward where most of the traders fail. Position sizing and Risk reward can make an indicator effective or ineffective upto an extent.
//Below is a simple code in "version 5" which can be coded.
//Condition (Amend conditions as per your requirement of Breakout/Breakdown trade).
Buy= ta.crossover(close,upperband)//Exit Sellposition//for Envelope or BB
Sell= ta.crossunder(close,lowerband)//Exit Buyposition//for Envelope or BB
or
Buy= ta.crossover(high,ema)//Exit Sellposition//for EMA
Sell= ta.crossunder(low,ema)//Exit Buyposition//for EMA
//Plot
plotshape(Buy,title='Buy',text='Buy',location=location.belowbar,style=shape.labelup,size=size.tiny,color=color.rgb(27, 130, 1),textcolor=color.new(color.white,0))
plotshape(Sell,title='Sell',text='Sell',location=location.abovebar,style=shape.labeldown,size=size.tiny,color=color.rgb(233, 7, 7),textcolor=color.new(color.white,0))
//Alerts
alertcondition(Buy, "Enter Buy Exit Sell", "Buy")
alertcondition(Sell, "Enter Sell Exit Buy", "Sell")
//For NonRepaint :
//you may use previous candle closing. So that indication appears on next candle. for eg. may use close.
//Soon will be posting strategies on Supertrend, RSI etc. which are simple and easy to code.
//Tc Happy Trading and Happy Coding.
An exponential moving average (EMA) is a moving average that measures the average price of a security and assigns more weight and meaning to the most recent data points. Compared to SMA, EMA responds more effectively to recent price changes and applies equal importance to all observations over the period.
What is an Envelope:-
Envelopes are technical indicators that are typically plotted over a price chart with upper and lower bands. The most common example of an envelope is a moving average envelope or an exponential moving average, which is created using two moving averages that define upper and lower price range levels.
What is an Bollinger Bands:-
A Bollinger Band is a technical analysis tool defined by a set of trendlines. They are plotted as two standard deviations, both positively and negatively, away from a simple moving average or an exponential moving average of a security's price and can be adjusted to user preferences.
Logic:-
We all have heard about Reversal trading based on "Bollinger Bands" and "Envelope" when upper and lower bands are far from the basis centre line. but these upper and lower bands can also be used for Breakout and Breakdown (Trend) trading with small/limited Stoploss.
Chart Timeframe:-
200 EMA is a standard EMA used by many traders and it can be used in any timeframe. 200EMA can be used in Envelope & Bollinger Bands also. I recommended to use it on 5 minute or 15 minutes chart on stocks or indices for intraday trading, on 4Hour or 1 Day chart on stocks for for Swing trading, on 1 Week chart on stocks for positional Trading.
//-------------------------------------------------------------------------------------------------------------------
Strategy 1:- (EMA high/close/low)
Three EMA's can be plotted with Length 200 for all three, but source different for all three high/close/low.
When price close above EMA (high) its a Breakout, Buy - keeping Stoploss as price closing below EMA (low) and Target as per 1:3 or 1:5 risk reward ratio.
When price close below EMA (low) its a Breakdown, Sell - keeping Stoploss as price closing above EMA (high) and Target as per 1:3 or 1:5 risk reward ratio.
//------------------------------------------------------------------------------------------------------------------
Strategy 2:- (Envelope - Upper Band/Basis/Lower Band)
Envelope can be plotted with Length - 200, Percent - 0.05 , Source - close, you may use Percent as per your risk reward and as per the setting which suits you. however i have used percent - 0.05 for 5 min and 15 minutes timeframe for intraday in index here in this idea.
When price close above upper band its a Breakout, Buy - keeping Stoploss as price closing below lower band and Target as per 1:3 or 1:5 risk reward ratio.
When price close below lower band its a Breakdown, Sell - keeping Stoploss as price closing above upper band and Target as per 1:3 or 1:5 risk reward ratio.
//-------------------------------------------------------------------------------------------------------------------
Strategy 3:- (Bollinger Bands - Upper Band/Basis/Lower Band)
Bollinger Bands can be plotted with Length - 200, Basis MA type - EMA , Source - close, StdDev - 0.3 you may use StdDev as per your risk reward and as per the setting which suits you. however i have used StdDev - 0.3 for 5 min and 15 minutes timeframe for intraday in index here in this idea.
When price close above upper band its a Breakout, Buy - keeping Stoploss as price closing below lower band and Target as per 1:3 or 1:5 risk reward ratio.
When price close below lower band its a Breakdown, Sell - keeping Stoploss as price closing above upper band and Target as per 1:3 or 1:5 risk reward ratio.
Note:- You may also keep Basis centre line as Stoploss in both Breakdown or Breakout trades but remember that in this case Stoploss will be smaller but will be more frequent as compare to the above situation when we are keeping upper and lower bands as Stoploss.
//-------------------------------------------------------------------------------------------------------------------
Like other technical indicators, These indicators also are not a holy grail. It can only assist you in building a good strategy. You can only succeed with proper position sizing, risk management and following correct trading Psychology (No overtrade, No greed, No revenge trade etc).
ABOVE SHARED EXPLANATION AND STRATEGIES OF EMA, Envelope, Bollinger Bands ARE ONLY FOR EDUCATIONAL PURPOSE ONLY. YOU MAY PAPER TRADE TO GAIN CONFIDENCE AND BUILD FURTHER ON THESE.
Coding Note:-
//you may do simple coding in tv to make an effective indicator with alerts using EMA/Envelope/Bollinger Bands.
//I feel Simple strategy or indicator is the best.
//As per me Indicator's are not good or bad. Its the Risk reward where most of the traders fail. Position sizing and Risk reward can make an indicator effective or ineffective upto an extent.
//Below is a simple code in "version 5" which can be coded.
//Condition (Amend conditions as per your requirement of Breakout/Breakdown trade).
Buy= ta.crossover(close,upperband)//Exit Sellposition//for Envelope or BB
Sell= ta.crossunder(close,lowerband)//Exit Buyposition//for Envelope or BB
or
Buy= ta.crossover(high,ema)//Exit Sellposition//for EMA
Sell= ta.crossunder(low,ema)//Exit Buyposition//for EMA
//Plot
plotshape(Buy,title='Buy',text='Buy',location=location.belowbar,style=shape.labelup,size=size.tiny,color=color.rgb(27, 130, 1),textcolor=color.new(color.white,0))
plotshape(Sell,title='Sell',text='Sell',location=location.abovebar,style=shape.labeldown,size=size.tiny,color=color.rgb(233, 7, 7),textcolor=color.new(color.white,0))
//Alerts
alertcondition(Buy, "Enter Buy Exit Sell", "Buy")
alertcondition(Sell, "Enter Sell Exit Buy", "Sell")
//For NonRepaint :
//you may use previous candle closing. So that indication appears on next candle. for eg. may use close.
//Soon will be posting strategies on Supertrend, RSI etc. which are simple and easy to code.
//Tc Happy Trading and Happy Coding.
Note
This is for educational purpose only. Please consult your financial advisor before investing. we are not SEBI registered.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.