Updated on August 17, 2021, |AtoZ Markets- I know there are many Forex strategies out there. There are also just as many moving averages based forex strategies. However, many traders keep on jumping from one strategy to another and end up quitting. What about you? Are you still in search of the best Forex trading strategy fitting your needs?
After trying many I believe that less is more. You probably wonder what I mean!? In short, I believe the fewer indicators you use the better results you can get.
Indeed, this 200 EMA Forex Trading Strategy is one of the very few strategies (possibly - by law I can not guarantee results, right?) capable of bringing you the result you are looking for. Of course, this is only possible if you follow the 200 EMA Forex Trading Strategy rules. The first thing we need to know is What is EMA? and we will see that below.
What is EMA?
In this part, we will learn about what is EMA, and how to chart them. Moving Average (MA) is a great tool that allows you to evaluate market trends.
Types of Moving Averages:
- Simple Moving Average (SMA)
- Exponential Moving Average (EMA)
- Smoothed Moving Average (SMMA)
- Linearly Weighted Moving Average(LWMA)
The Exponential Moving Average, or EMA, is one of the basic technical analysis indicators, which is very useful for traders who want to determine the trend of an asset's value. This EMA calculation benefits the most recent prices by giving them greater weight and decreases it exponentially as one moves back in time.
When using an intraday forex trading strategy, using an EMA chart is an effective tool. It is very important to choose the EMA that best suits your time frame in your forex trading strategy.
The formula for calculating the EMA chart is Current EMA = [Closing price - EMA (previous day)] x Multiplier + EMA (previous day).
An Exponential Moving Average (EMA) can help your daily forex trading strategy to:
1. Confirm a price trend in a specific time frame.
2. Identify trend changes in your charts.
3. Identify the most appropriate time to open or close a trading position.
However, EMAs must be used and combined with other instruments and indicators. To seek a greater probability of success in the operations of your daily forex trading strategy.
In the following chart, we can see the different types of moving averages that we can use.
We can see that the EMA can show us, more efficiently, the moment when the market changes direction. Moving averages help us to establish supports and resistances in the forex market. We can use various time frames of EMAs to use the crosses of these in our daily forex trading systems.
260 EMA Swing Forex trading strategy
Yagub Rahimov developed a simple strategy a few years back based on 260 EMA applied to the median on the daily time frame. The 260 EMA Swing Forex trading strategy also combined a stochastic oscillator (14,3,5). The Logic for this system is too simple. If the EMA is sloping down, price bouncing off the 260 daily EMA and the stochastic oscillator bounced off the 80 zones, place a sell order. SL must be above the most recent highest high and TP should be 1.5 times the SL.
200 EMA Forex Trading Strategy
The 200 EMA Forex Trading Strategy is very easy to implement and manage Forex strategy. As the name suggests, similar to the M30 EMA trading system, or the 260 EMA Swing Forex strategy, the 200 EMA system is based on 200 periods Exponential Moving averages. Simply, follow the trend principles: buying low, and selling high. Also, if you can catch the major market move, this 200 EMA trading strategy will let you execute large swing trade entries.
To get this swing trade strategy, you will need to understand how to identify trend direction.
To properly determine the trend, you need to use the exponential moving average. EMA is not a custom MT4 indicator. Moreover, since our strategy implies 200 EMA, you will need to make sure to select EMA from MA settings. And, btw, the best time frame for this EMA is the 4-hour chart. Why?
200 EMA is a very popular indicator that is used to determine the main underlying trend. This indicator allows a trader to determine the trend irrespective of any corrective move in the price action.
What do you need to know about 200 EMA?
- When the price is below the 200 EMA, you have a downtrend. If the EMA slopes down the trend are stronger.
- When the price is above the 200 EMA, this is an uptrend. If the EMA slopes upwards the trend is strongly bullish
How does the 200 EMA trading strategy work in 5 steps?
The 200 EMA trading strategy is a multi-timeframe Forex strategy. Therefore, you will need the daily chart, the 4-hour chart, and the 1-hour chart. If you are wondering about the best time frame for a 200 EMA trading strategy, the answer is 4 hour chart.
- Place the 200 EMA on the daily chart and identify the trend direction. Remember, the daily chart is determining the main trend;
- Shift to the 4 hours chart and see the 200 EMA correlation with the daily chart;
- If you can see a clear correlation, switch to the 1-hour chart and again check if the 200 EMA has the same trend as in the two previous time frames (daily and 4 hours);
- Remember, it is the 1-hour time frame chart, where you enter the trades.
- Here, in the 1-hour timeframe chart, you want to be buying low, and selling high.
BONUS: Add Stochastic 14, 3, 5 to your chart. Sell Only if the stochastic is below 80, and buy only if stochastic is above 20.
Key Principles of 200 EMA Strategy
- As soon as the price lines up on the right side of the EMA on all of the charts (daily, 1 hour, 4 hours), you need to trade bounces from the 200 EMA. For this particular example, we will use long trends;
- Use the price action with the help of reversal candlesticks;
- Once you confirm with the candlestick pattern, go short just 3-5 above the high of the reversal candlestick. (In this example, this is a downtrend and you are selling);
- Place the stop loss at least 10-15 pips outside of the 200 EMA line;
- Use the previous swing high or swing low on the 1-hour chart as you take profit target levels.
To manage your profitable trade, use the trailing stop technique. If you are wondering about what is trailing stop-loss order is in Forex, maybe it is time to read a little.
200 EMA Strategy Common Obstacles
Every single trading strategy has its drawbacks and sometimes things can go not as per your plan. With the 200 EMA Trading Strategy, there are two most common scenarios. Both of them are easy to solve, so don’t worry. And don't forget, using the bonus of 14, 3, 5 stochastic oscillators you will also reduce the noise in the market dramatically.
What if the trend on the 1-hour chart is different from those on the daily and 4-hour timeframe charts?
Just wait until the trend in the 1-hour time frame chart is the same as in the 4-hour chart and the daily chart. Keep an eye on the price, and when it trades above the average, act - trade the bounce of the 200 EMA.
What if the trend on the 1 hour and 4-hour timeframe charts is the same, yet different in the daily chart?
Same here, be patient and wait till all time frames will show the same trend! Or just have your 4H + 1H trend be your guide. Just bear in mind, do not over trade.
We can see that the use of the EMA in our trading strategy is very important because it allows us to follow the trend of the assets we are using daily.
Also, after understanding what an EMA is, we can see that its use is very important for any Forex day trader. Different trading strategies can be created, using the combination of many time frames of EMAs. The 200 EMA is a moving average widely used by most traders. Since it has a high informative value, the 200 EMA is very effective in forex day trading.
The 200 EMA trading strategy is your best choice when you want a simple but effective forex strategy.
Happy trading! If you have questions, BRING IT ON! Challenge me and of course yourself!