Swing Trading Strategy : No 2 | Rising 50 EMA

In this “Swing trading strategy: No 2”, we will discuss Rising 50 EMA Strategy. This we can apply when we expect prices to go up.

Table of Contents

Figure 1: Strategy Table

Concept

Moving Average is a lagging indicator which means it follows price movement and gives confirmation of an ongoing trend to a trader.

Daily timeframe is used so that all noise in prices is removed. As you move higher in timeframe, false signals in prices or patterns are less. Daily and weekly timeframe are good for swing and positional trading in stocks.

Rising 50 EMA Strategy

Capital Allocation

A trader should allocate 5-6% of overall capital in one stock. This means if you have 10 lac rupees to allocate, then 50,000 Rs will be allocated to 1 stock and you will have around 20 stocks in the portfolio. Maximum allocation in stock should be around 8-10% if you have great conviction in any stock

Indicator used: 50 EMA

Selection of Stocks

Choose Stocks with enough liquidity.
It can be Large cap, Mid cap, or Small cap stock.
Now look for stocks where 50 EMA is rising. As discussed in Moving average indicator article , when EMA is rising it means stock is in uptrend. Let’s see some stocks where EMA is rising because this can be confusing to a new trader.
We will shortlist few potential stocks where EMA is rising.

Swing trading strategy Figure 2 — **Figure 2:** The highlighted part is where 50 EMA is not rising and hence we will not shortlist this stock.

Swing trading strategy Figure 3 — **Figure 3:** Here 50 EMA is rising and hence it is a potential stock to choose for our shortlisted stocks.

Swing trading strategy Figure 4 — **Figure 4:** In this stock the EMA is more or less flat . While a trader can see it little bit rising but as we always say that in trading we choose high probability setup. If you have to shortlist stock between Figure 3 and this , you will choose stock in Figure 3 and not this stock . This is because 50 EMA is clearly rising in Figure 3 and we can choose from large list of stocks that are currently listed on NSE or BSE.

Entry Rule

Step 1: After selecting stocks, look for a full body Green candle near 50 EMA. There are two conditions for this candle

Candle should be of average size and not very large size.
Candle should close above 50 EMA

If the green candle fulfill above two conditions then this will be our alert/signal candle.

Step 2: Once alert candle high is broken we will enter in the trade.

**Figure 5:** The candle with black arrow is large body candle and we will not choose it as our alert candle( As per our rules). The candle with green arrow is our alert candle and we will enter once its high is broken. The low of red arrow candle ( Candle before alert candle) is lower than alert candle and hence it will our stop loss level *(Check stop loss rules)*

Swing trading strategy Figure 5 — **Figure 7:** Candle with green arrow is alert candle. The stop loss level is marked by black line. We will enter once high of alert candle is broken ( Marked with blue arrow)

Stop Loss

Now let us understand where we will put stop loss in this strategy

Case 1: If low of the candle prior to alert candle (Let us say it is candle D1) is LOWER than alert candle low. (Confusing 😊 We will see this with the help of diagram)

Stop Loss: It will be low of candle D1. (Just keep it little lower than low of candle D1)

Case 2: If low of the candle prior to alert candle (Let us say it is candle D1) is HIGHER than alert candle low

Stop Loss: It will be low of alert candle .(Just keep it little lower than low of alert candle)

Stop loss - Swing Trading Strategy — **Figure 8:** How to choose Stop Loss. Candle D1 is the candle prior to alert candle

Exit Rule

For this strategy we will keep risk reward of 2 and hence our target will be double of our risk in the trade. Let’s see this with help of an example

Suppose out Entry price is at 100 Rs and our Stop Loss is at 80 Rs. This means we have a risk of 100-80= 20 Rs in the trade.

Considering risk reward of 2 , we will keep target of around 40 Rs in this trade. So once stock reaches 140 Rs we will exit the trade and look for other opportunities.

Important points to consider basis this setup

We will focus on price action and 50 EMA indicator in this setup.
It is a kind of setup which has the potential to give you good returns even if you are working in 9-5 job. On weekend’s you can select stocks and keep it in your watchlist. Once entry signal is there, you can enter with fixed Stop Loss and Target during the week.

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