The Magic of Moving Average Trading With ICT Concepts

Moving averages are one of the most effective tools in day trading, especially when combined with ICT concepts like Fibonacci retracements, optimal trade entries (OTE), and liquidity grabs. In this post, we'll walk through how using moving averages—specifically the 4-period EMA with a shift of 4, the 10-period EMA, and others—can refine your entries, exits, and trend-following strategy.

Understanding Moving Averages in Day Trading

Moving averages help smooth out price fluctuations, making it easier to spot trends and make more informed decisions. Whether you're trading forex, stocks, or futures, moving averages can offer powerful insights into market direction.

Key types of moving averages:

Simple Moving Average (SMA)
Exponential Moving Average (EMA): More sensitive to recent price movements.

In this guide, we'll focus on short-term EMAs for precise entries and exits, particularly the 4-period EMA with a shift of 4, which can be extremely effective when combined with ICT concepts.

The 4-Period EMA with a Shift of 4: A Game-Changer for Precision

The 4-period EMA with a shift of 4 is ideal for short-term trend following. It closely tracks the price action, making it incredibly useful for intraday trading. Here’s why it works so well:

Precision for Entries and Exits: The 4-period EMA with a shift of 4 reacts quickly to price changes, giving you more precise entry and exit points. When price closes above or below this moving average, it signals when to enter or exit a trade.
Avoiding Trend Shift Delay: Because it’s so closely aligned with the price action, it will give you an earlier exit when the trend begins to reverse compared to other moving averages, such as the 10-period EMA.

Counting the Number of Bars Since the Price Has Touched the EMA

An important concept in this strategy is counting the number of bars since price has touched a moving average. This helps you understand how far price has moved since it last interacted with the moving average, which can indicate the strength or weakness of the current trend.

Example: If price crosses the 4-period EMA and moves away, you can count the number of bars until it touches the moving average again. This gives you an idea of whether the current trend is strong (if price is moving far away from the EMA) or whether it’s starting to lose momentum (if it’s getting closer to the EMA).

This technique is crucial in trend-following strategies, helping you gauge the health of the current trend and avoid entering trades prematurely.

Comparing the 4-Period EMA with the 10-Period EMA

While the 4-period EMA gives you precision, the 10-period EMA offers a smoother and more reliable view of market trends. However, it's slower to react than the 4-period.

4-period EMA: Best for quick entries and earlier exits.
10-period EMA: Offers a more stable view of price, but it lags slightly behind the 4-period EMA.

By using both together, you can filter out false signals and ensure you’re following a strong trend.

The Role of the 20-Period EMA in Filtering False Signals

The 20-period EMA is a filter for short-term trends. This moving average helps you separate the strong trends from false breakouts by providing a more stable reference for trend direction.

When price crosses the 4-period EMA but stays above the 20-period EMA, you can have more confidence that the trend is still intact.
If price crosses the 4-period EMA but the 20-period EMA remains unbroken, it could signal that the trend is not yet finished and that you should stay in the trade.

Using the 50-Period EMA for Short-Term Reversals

The 50-period EMA is a good tool for detecting short-term reversals. If price touches or crosses this level, it might signal that the trend is about to change.

When price crosses below the 50-period EMA, it’s a sign that the bullish trend may be ending, and a bearish trend could be forming.

The 200-Period EMA for Long-Term Reversals

The 200-period EMA is ideal for spotting long-term reversals. It acts as a strong reference point for major market turns, especially on higher timeframes like the 4-hour or daily chart.

If price reaches the 200 EMA, it typically signals a strong reaction, either continuing the trend or reversing direction.

Using the 50, 200, and 500 Period EMAs Together for Accurate Entries

The 50-period, 200-period, and even 500-period EMAs can help you gauge potential long-term reversals. A price reaction at these levels can provide you with valuable entry points.

For instance, when price reacts strongly off the 500 EMA, combined with a liquidity grab and break of structure from ICT concepts, it can indicate a valid entry. Fibonacci retracements and optimal trade entries (OTE) further confirm the setup.

Determining Daily Bias with Moving Averages

One of the most useful ways to predict price direction over a larger timeframe is by using the 200-period EMA on the daily chart. This moving average helps determine your overall market bias.

If price is above the 200-period EMA, it’s likely a bullish market.
If price is below the 200-period EMA, the market is likely bearish.

Final Thoughts

Incorporating moving averages like the 4-period EMA with a shift of 4 into your ICT strategy can help you improve your entries, exits, and trend-following. By understanding counting bars and combining different EMAs, you can make more informed decisions and trade with greater confidence.

Mastering how to combine these tools will set you up for success, whether you're trading forex, stocks, or futures.

Happy trading!