Today, I want to share one of my most successful crypto trading strategies ever!
I will lay out all the details: Required indicators, entry and exit signals, how to use them, and even backtest results.
Here’s the icing on the cake: The strategy does not require any special tools or things you need to buy. You can take the information and execute it right away.
Ready? Let’s get into it!
About The Crypto Trading Strategy
Efficient and successful trading strategies don’t need to be complex. Actually, it’s often the most straightforward strategies that deliver the best results. The strategy at hand combines trend and momentum indicators to pinpoint high-potential entry points, providing a straightforward approach to navigating the crypto markets.
In this documentation, I will walk you through the strategy, discuss exactly how it works, and provide everything you need to immediately execute the strategy using tools like TradingView or CryptoKnowledge.
Summary
Here’s a comprehensive summary in case you want to kickstart trading with the strategy.
Indicators
- EMA (25) EMA (100) EMA (200) ADX (14)
Chart Timeframes
- 15M, 1H, 4H, 1D
Long Entry
- EMA200 indicates an uptrend.
- EMA25 is above EMA100 and both are above EMA200.
- The ADX must be above 30.
- Price dips below EMA25 but stays above EMA100 and crosses back above EMA25 within five candles.
Short Entry
- EMA200 indicates a downtrend.
- EMA25 is below EMA100, and both are below EMA200.
- The ADX must be above 30.
- Price rises above EMA25 but stays below EMA100 and crosses back below EMA25 within five candles.
Exit Signal
- Fixed Stop-Loss/Take-Profit levels (e.g., 1% and 3%). Or…
- EMA25. For long trades, exit when the price crosses below the EMA25 again, for short trades when the prices crosses above. Or…
- A combination of both, having the EMA25 as a stop loss and a fixed take profit.
Trading Strategy Details
As already mentioned, the strategy is straightforward. At the core of it lies the harmonious blend of different Exponential Moving Averages (EMAs) and the Average Directional Index (ADX).
This duo works in tandem to identify the trend and confirm its strength, setting the stage for informed entry points.
Required Indicators
To kickstart this strategy, you will need two key indicators (well, actually four — however, we use the Exponential Moving Average in three different ways):
- Exponential Moving Average 25 (moving average of the last 25 data points. For example, if you are on the daily chart, the average of the last 25 days).
- Exponential Moving Average 100 (moving average of the last 100 data points)
- Exponential Moving Average 200 (moving average of the last 200 data points)
- Average Directional Index (ADX 14): A crucial indicator for gauging trend strength, with the sweet spot above 30.
Chart Timeframes
This strategy is versatile across several chart timeframes, including 15M, 1H, 4H, and daily charts. However, backtests have shown that hourly and daily charts yield the best results.
Entry Signals
Let’s have a look at the entry signals. The strategy provides a clearly defined entry signal for both long and short trades. However, it is important to make sure that all criteria are met before opening a trade!
Long Entry Signal
- Ensure the price is above EMA200 to indicate an uptrend.
- Confirm that EMA25 is above EMA100 and both are above EMA200.
- The ADX must be above 30.
- You have to look for the price to dip below EMA25 but stay above EMA100 and cross back above EMA25 within five candles.
Here’s what has happened: The asset is in an overall uptrend with long-, medium-, and short-term EMA perfectly aligned. The ADX is seconding the uptrend and indicates a strong trend. The last criterion basically looks for a small pullback that gets bought up quickly before the uptrend continues. This is when we enter!
Short Entry Signal
Obviously, the short entry is the opposite in terms of indicators.
- Verify the price is below EMA200 indicating a downtrend.
- Check that EMA25 is below EMA100, which is below EMA200.
- The ADX must be greater than 30 (similar to the long signal since we are looking for a strong trend again).
- The price should rise above EMA25 but remain below EMA100, then drop back below EMA25 within five candles.
Here’s what has happened: The asset is in an overall downtrend with long-, medium-, and short-term EMA perfectly aligned. The ADX is seconding the downtrend and indicates a strong trend. The last criterion basically looks for a small pullback that gets sold quickly before the downtrend continues. This is when we enter!
Exit Signal
When it comes to the exit signals, you can have more flexible approaches. However, make sure to define your exit strategy before you enter the trade.
Here are two options:
- Set fixed Stop-Loss/Take-Profit levels (e.g., 1% and 3%). You can backtest the best levels before executing your trade (CryptoKnowledge offers a straightforward feature to backtest your strategies).
- You can also use the EMA 25 as your exit signal. For long trades, exit when the price crosses below the EMA25 again. Accordingly, you close your trade for short trades when the price crosses above the EMA25 again.
- Moreover, you can mix both approaches. For example, you can use the EMA25 as your stop-loss level (which serves as take profits in the best case) and additionally use a fixed take profit level.
Backtest Results
This is the most interesting part when it comes to the strategy. Despite the strategy’s simplicity, backtesting has demonstrated a remarkably high success rate on average.
Success rates of 80% and even 90% have been observed depending on market conditions and chosen tokens.
How To Apply The Strategy?
All indicators required for this strategy are available on TradingView, making it accessible for traders at all levels.
For those looking for a more direct approach, CryptoKnowledge offers this strategy as a pre-defined signal for more than 200 crypto tokens, simplifying the process even further.
What’s Next?
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