The Definitive rules and results for the 7/21 EMA Mechanical System.

Table 1

Above is a simple table which I keep updated for the overseas indices I trade and

below is the table for the local index, the TOP40, which I use as a proxy to place trades on

the futures board, which is called the ALSI.

Table 2

Now I would like to take some time to explain what I do and use for the various

(overseas and local – South Africa ) to trade these markets.

1: Overseas

I use IGINDEX (A spread betting site which allows me to trade the Daily Cash – The Dow)

http://www.igindex.co.uk/

I do the same for the Dax and the FTSE.

I don’t use their charts or anything, I simply use them as a platform to trade. I use Esignal

and their charting software and I use the CASH (that’s the actual Dow, Dax and FTSE)

charts to place my trades. I have found from experience (especially locally in South Africa )

that using the cash charts provides smoother trades and less whip than trading using the

futures charts.

The other benefit to IGINDEX is that it allows me to profit tax free (I am a British citizen)

due tothe laws surrounding spread betting. I place (on average) £10 per trade, which means

for every point I make I gain £10. Is that simple, so you can see that (lets take this month

(October- see Table 1)) I would have made a total (across the board) of £113.100.00 ($194,532.80).

2: Locally

It works slightly different; here I trade (again using the cash chart on Esignal – called the

Top40) via brokers and place my trades directly on the ALSI (the futures market), the big

difference here is the awesome gearing. Again let me use take this month October (Table 2). For

every trade I gain R10 (A Rand is worth about $1) a point times the number of contracts

(usually 10). So the total for this month is a combined 5233 points * R10 * 10 (contracts)

equals a nett profit of R523.300.00 ($52,330.00).

The point that is important to understand (apart from being really profitable and you can do

the year to date figures) is that it works across almost all indices (and on stocks), BUT one

must use the CASH charts as your proxy, not the futures charts.

The System:

Is quite simple (and before I start, I have removed all offsets, to make it easier, one doesn’t

have to use them). You have:

1: A 7 EMA (Open+High+Low+Close)/4

2: A 21 EMA (Open+High+Low+Close)/4

So when the 7 crosses the 21 then you are on alert for what I call the confirming candle,

in the direction of the crossover.

EG:

Chart

In this example you will see that the 1 represents the crossing candle and the 2 represents

the confirming candle, now this is a clear cut case, where you can apply normal rules

because the market is moving fast. One can, at any time after the confirming candle is

higher (or lower on shorts), than the crossing candle take the trade.

Normally on the 5 min system I wait till around 3 minutes of the next five minute candle

(and 10-12 mins on 15 min system) before taking a position. Here it worked fine.

Below is an example of where you have to be more patient and often you will see me draw blue

horizontal lines; which serve to tell me at what point one can enter the trade.

This is the FTSE 5 min

Chart 2

As one can see I got a crossing candle at 1, and in the first min it was HIGHER and confirming,

but the market was slow and dogged and against the major trend and sure enough it failed and

carried on lower, which means you would have kept your short.

And finally here are examples of the ALSI (South African) 5 min, where it is important to draw a

line at the top (or bottom) of the crossing candles and wait for a break of each line for a trade.

Chart 3

NB: The crossing candle can be any colour

In each trade (long and short) above you can see 1 represents the crossing candle and 2 the

confirming candle, sometimes you can wait 2, 3 or 4 candles before it confirms or fails and

crosses back to the direction of your original trade. Only the last one here breaks cleanly and

gets you in on what I call a normal trade.

Well I hope this all helps.

Regards

Ravun.