10-day EMA strategy (Marty Schwartz)
Marty Schwartz said the 10-day EMA was his main filter: only be long when price is above it.
Try 10-day EMA strategy (Marty Schwartz) on a real day
A real market day with the date hidden. Run the checklist on the chart, then buy, sell or stay out: the real candles answer.
Check every point of the list before you decide. Stay out if the setup is not there.
Marty Schwartz, champion of the US Investing Championship in the 1980s and one of the traders interviewed in "Market Wizards", described a simple rule in his book "Pit Bull": he used the 10-day exponential moving average to decide whether to be long or not.
Why it works
A short average keeps you on the right side of the current swing. Above it, buyers are in control of the last two weeks; below it, they are not.
Schwartz combined it with strict money management: after a loss, he reduced size; he did not try to win it back immediately.
The rules
Setup
- Daily chart with the 10-day EMA.
Entry
- Buy when price closes above the 10-day EMA after being below it, or buy pullbacks to the rising EMA.
Stop loss
- A daily close below the 10-day EMA.
Exit and management
- Exit on the first daily close below the EMA.
Filters that improve it
- Prefer trades when a longer average (for example the 50-day) also slopes up.
- After two consecutive losses, halve the size.
Worked example
Illustrative gold example: gold closes at $2,410, above the 10-day EMA at $2,395, after a week below it. Buy at the close. The trade is held for twelve days and closed when a daily candle closes below the EMA at $2,468.
Illustrative numbers, not a recommendation.
Common mistakes
- Using the rule in a range, where price crosses the EMA every few days.
- Ignoring the money management part of the method.
How to practise it
In Candlemind write ema(close, 10) in My indicators. Only consider longs above it and record how many whipsaws you take in sideways markets.
Pre-trade checklist
- Close above the 10-day EMA
- EMA turning up
- Longer average supportive
- Exit on a close below the EMA
- Size reduced after losses
Frequently asked questions
Who is Marty Schwartz?
An American trader, author of "Pit Bull", featured in Jack Schwager's "Market Wizards".
Why the 10-day EMA?
It is short enough to react to the current swing and long enough to filter daily noise.