by Michael Jones
Are you new to trading, seeking out a reliable 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.
This problem can be alleviated by using the 200 EMA – (Exponential Moving Average).
The 200 EMA is one of the most popular indicators of all time with Forex traders the world over, and for that reason alone…
by Michael Jones
Are you new to trading, seeking out a reliable 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.
This problem can be alleviated by using the 200 EMA – (Exponential Moving Average).
The 200 EMA is one of the most popular indicators of all time with Forex traders the world over, and for that reason alone is worth noting due to the psychological effect on the market place price can have when hovering around the 200 EMA.
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 plot a 200 EMA indicator on each chart and, as a suggestion, color it red, for easy visual impact.
Preferably tile the 3 windows containing your 3 charts into a vertical fashion so you can see the 3 time frames next to each other. It will squeeze up the information on the charts somewhat but for the purpose of this strategy that doesn’t matter.
Now scroll through the various currency pairs you like to trade.
Currency pairs with a smaller pip spread, i.e. less than 10 on most platforms, come to about 9 different pairs.
Here they are:
EUR/USD | GBP/USD | USD/CHF | USD/JPY | EUR/JPY | USD/CAD | AUD/USD | NZD/USD | EUR/CHF
Search through and see if price is going against the 200 EMA on the 15 minute chart on any of the currency pairs.
Take as an example the EUR/USD pair. Make a note of where price is in relation to the 200 EMA on the three different times frames.
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 the main trend is going up while price is now in retracement, temporarily going against the overall trend.
Using the fundamental trading principle of “buy the dips in an uptrend”, “sell the rallies in a downtrend”, look for a suitable entry point.
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.
This is an easy exercise and it can be done once or twice a day, taking just a few minutes.
Look Out For Price Going Against 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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