We all know that there are many trading strategies online based on moving averages. However, there are a lot of traders who often jump from a strategy to another. In the end, they end up quitting their trading career. What about you? Are you looking for a Forex trading strategy that fits your needs? We believe that using fewer indicators may give you better results in Forex trading. Indeed, this 200 EMA Forex Trading Strategy is one of the famous Forex trading strategies that can give you outstanding results. Of course, making a consistent profit is only possible when you follow the rule of the 200 EMA Forex Trading Strategy strictly.
200 EMA Forex Trading Strategy
The 200 EMA Forex Trading Strategy is very easy and profitable to implement and manage. As the name suggests, the 200 EMA system is based on 200 periods of Exponential Moving averages. Your main objective is to follow the basics of supply and demand by buying low and selling high. Moreover, if you can predict most of the major market move with this 200 EMA trading strategy may help you to execute large swing trade entries.
Before proceeding further to this trading strategy, you should know and understand how to define the trend direction.
In order to identify the trend properly on any time frame, you should use the exponential moving average indicator. Currently, all of the trading platforms including MT4, MT5, and cTrader provide this indicator free. Moreover, since this trading implies 200 EMA, you will use exactly this indicator.
200 EMA is very famous and easy to use an indicator that is used to predict the underlying trend. Moreover, many professional and institutional traders use this indicator for their trading strategies. The 200 EMA will allow traders to determine the trend than can give an impulsive move in the price action.
- What you should know about 200 EMA?
When the price is below the 200 EMA, you will consider the overall trend as a downtrend. The slopping down of the EMA will indicate the strength of the trend.
Conversely, when the price is above the 200 EMA, this overall trend is an uptrend. If the EMA slopes upwards you may consider the trend as a strong bullish trend.
- How Does The 200 EMA Trading Strategy Work
The 200 EMA trading strategy is basically a multi-time frame Forex trading strategy. Therefore, to identify a possible trading opportunity you will need the daily chart, the 4-hour chart, and the 1-hour chart. However, the best time frame to take the entry is the 4-hour chart.
Steps of the 200 EMA Forex Trading Strategy
As first, you should place the 200 EMA in your forex chart on the daily timeframe of a Forex pair you are trading to identify the direction of the trend. Remember, you are observing the price direction from the daily timeframe.
Then move to the 4 hours timeframe and see whether the 200 EMA points the same trend as it is in the daily chart. You will proceed to step 3 if the Daily and H4 show the same price direction.
Therefore, move to the 1-hour timeframe you should check again if the 200 EMA matched the same trend as it shows in the two earlier time frames (4 hours and daily).
Remember, you are in a 1-hour time frame chart. In this timeframe, you enter the trade in case the trend shows the same direction to one of the daily and 4-hour charts.
Here, in the 1-hour chart, you will take your buy and sell entry towards the trend.
200 EMA Forex Trading Principle
As we know there is not an ultimate trading strategy that can guarantee you a 100% accuracy. In forex trading, we basically anticipate the price movement. Therefore, the more we understand the market context we can increase the probability of trade winning. Besides, 200 EMA in the Forex trading strategy we should understand the overall market structure using some other tools.
#1 Use of the price action and Candlesticks
After confirming the candlestick pattern, you can take the trading entry if the above-mentioned steps match on your trading timeframe.
You should wait for the price to come towards the 200 EMA on a 1-hour time frame and if the price bounces from the 200 EMA with a reversal candlestick pattern you can enter the trade with putting your stop loss above or below the candlestick pattern with some buffer.
For setting your possible target range, you can use the previous swing low or high on the 1-hour chart.
To manage your profitable trade, make sure to use the trailing stop loss technique. If you don’t know what is trailing stop-loss order in Forex, maybe it is time to identify and study this. Yous simply need to move your stop loss at break-even once your price moved towards a logical price level.
#2 Common Obstacles of 200 EMA Forex Trading Strategy
Every trading strategy has its own drawbacks and sometimes traders can not go as per their trading plan. With the 200 EMA forex trading strategy, there are two common scenarios that can appear in your chart. Both of the scenarios are easy to solve, so don’t worry. You can use the extra bonus of 14, 3, 5 stochastic oscillators to reduce the noise in the market.
What you should do if the trend on the 1-hour chart is not the same on the daily and 4-hour timeframe charts?
In that case, you just have to wait until the trend in a 1-hour time frame chart matches the 4-hour chart and the daily chart. You should keep your eye on the price and wait when the market is above the moving average, the trade may bounce back from the 200 EMA.
What if the trend in 1 hour and 4-hour timeframe is the same but different in the daily chart?
You should be patient and wait for the moment when both periods of time shows the same trend! Just make sure that you are not doing overtrade.
Forex trading is an exciting source of income for retail traders. However, the overall forex market is run by central banks and big financial institutes. Therefore, it is important to know what they are doing in the market.
Moreover, you should always follow money management techniques to mitigate the risk associated with the forex market. If you make some consecutive loss, do not overtrade. It is better to wait for an appropriate price pattern to come for further decision making.