Price Action: How to Use the Ease of Movement Indicator

After 20 years of trading, I may think I’ve seen it all.

Then, some one surprises me with something so ridiculous even I’m left banging my head against the wall.  The other day, an old friend told me he only uses relative strength (RSI) to tell him when to get in and out of trades.

“Just RSI,” he said.  “I swear by it.”

The same guy that lost $72,000 last year swears by it.  Granted, I’ve tried to convince him otherwise.  But sometimes, you have to let them figure it out on their own.

The worst thing you can ever do is rely a sole indicator.  We’ve said that consistently.  In fact, we use Bollinger Bands, MACD, DMI, RSI, Money Flow, and Williams’ %R with nearly all trade ideas.  If they don’t agree with one another, we don’t buy.  Once they agree, we buy.

 


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But even on agreement, trades can backfire.  It’s why you always want to find ways to strengthen which indicators you use.  In fact, to strengthen my personal system, I’ve added Ease of Movement, or EMV.

It’s a relatively easy tool to use.  We use it just as we would RSI, MACD and MFI.

With EMW, a move below the zero line is bearish.  A move above the zero line is bullish. Let’s use Randgold Resources (GOLD) as an example.  First, we can clearly see that since August 2016, when EMW crosses above the zero line, it’ll top out around 107 and pivot lower.  That’s our resistance line.  Then, once EMV begins to cross zero to the downside, it’ll find support around 177.

However, just because EMV moves above or below the zero line means nothing as a standalone indicator.  We must confirm.  We can see that when EMV stops falling, we find that Money Flow has dipped under 20, confirmed with RSI near 30 confirmed with a test of the lower Bollinger Band.

It’s just another tool we can put in our arsenal.

There are dozens more.  But if you use any of them, be sure to confirm with other indicators.  The second you use just one, as my genius friend does, you stand to lose money.  In fact, I’m not so sure his wife wants him touching their money any more.


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