by Michael Jones
Are you a relatively new trader looking for a solid forex strategy?
A challenge facing many new traders when developing their forex strategy is the ability to identify the overall trend for intra-day trading.
The 200 EMA (Exponential Moving Average) can solve the problem.
Forex traders around the world voted the 200 EMA indicator as one of their all time favorites. That should make us sit up and take note. In…
by Michael Jones
Are you a relatively new trader looking for a solid forex strategy?
A challenge facing many new traders when developing their forex strategy is the ability to identify the overall trend for intra-day trading.
The 200 EMA (Exponential Moving Average) can solve the problem.
Forex traders around the world voted the 200 EMA indicator as one of their all time favorites. That should make us sit up and take note. In view of the power of psychology, if that number of traders take note once price gets within reach of the 200 EMA, there is bound to be a reaction in the market most times.
The Simple 200 EMA Strategy
To use this very powerful Forex strategy, create charts on 3 time frames:
4 Hour Chart
1 Hour Chart
A 15 minute chart
Now add the 200 EMA indicator to each chart for the 3 time frames. You could color it red or whatever you prefer to make it stand out.
One suggestion is to use the vertical tile feature and have the 3 charts vertically side by side so you can easily eyeball the position of price relative to the 200 EMA. The candles may appear a little distorted but that really doesn’t affect your strategy.
Now it’s simply a matter of browsing through the currency pairs you have chosen to trade.
There are about 9 different currency pairs with a pip spread less than 10, so many prefer just to trade these.
Here they are:
EUR/USD | GBP/USD | USD/CHF | USD/JPY | EUR/JPY | USD/CAD | AUD/USD | NZD/USD | EUR/CHF
Train your eyes to identify a currency pair that goes against the 200 EMA on the smaller time frame, the 15 minute chart.
Using the EUR/USD pair as an example, check where price is relative to the 200 EMA on the 4 hour, 1 hour, and 15 minute charts.
If price is well above the 200 EMA on the 4 hour chart, well above the 200 EMA on the 1 hour chart, but BELOW the 200 EMA on the 15 minute chart, price is bucking the trend.
So price is temporarily going against the overall trend and is in a retracement mode.
Look for a good point to get into the market in harmony with the basic trading maxim of selling rallies in a down trend or conversely, buying dips in an up trend.
Say you were trading the EUR/USD pair, you would look at candle formations to see if there is a doji, or hammer, or any pattern that indicates price is exhausted and that it is about to resume the direction of the overall trend as shown on the 4 hour and 1 hour charts.
Taking only a few minutes, do this little exercise a couple of times and day and see if you can pick up some good setups.
Watch For Price Bucking The Trend
Sit up, take note, when you see price going beyond the 200 EMA on the smaller time frame, the 15 minute chart, while on the larger time frames, 4 hour and 1 hour, it is well beyond the 200 EMA in the opposite direction. Seize the change to make a high probability trade and bank some profits.
See for yourself how effective this simple Forex strategy is. Practice it for a short time and then, once convinced, add it to your Forex trading tool kit.
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