Are you a relatively new operator looking for a solid forex strategy?
One challenge that many new traders face when developing their forex strategy is the ability to identify the general trend for trade within a day.
The 200 EMA (exponential moving average) can solve the problem.
The EMA of 200 is one of the most popular indicators of all time with Forex traders around the world, and just for that reason, it is worth noting because of the psychological effect that the market price can have when it is placed around of the 200 EMA.
Using the 200EMA strategy
To use this very powerful Forex strategy, create frames in 3 time frames:
- 4 hours
- 1 hour
- 15 minutes
Now draw a 200 EMA indicator on each chart and, as a suggestion, color it in red, for easy visual impact.
Preferably, tile the 3 windows that contain your 3 frames vertically so you can see the 3 time frames side by side. It will squeeze the information in the graphics a bit, but for the purpose of this strategy it does not matter.
Now scroll through the different currency pairs that you like to trade.
If you prefer to exchange only pairs with a smaller pip differential, they amount to approximately 9.
- EUR / USD
- GBP / USD
- USD / CHF
- USD / JPY
- EUR / JPY
- USD / CAD
- AUD / USD
- NZD / USD
- EUR / CHF
What you are looking for is any currency pair that gains 200 EMA on the 15 minute chart.
For example, look at the EUR / USD pair and note the price position in relation to the 200 EMAs in the 3 time frames.
If the price is well above 200 EMA on the 4 hour chart, well above 200 EMA on the 1 hour chart, but BELOW the 200 EMA on the 15 minute chart, the price is against of the trend.
The general trend has risen, the price has been temporarily against the trend and is currently in decline.
Using the fundamental commercial principle of "buy the falls in an uptrend", "sell the upturns in a downtrend", look for an appropriate entry point.
In the previous example, you would look for the opportunity to buy the EUR / USD, perhaps seeing a signal that the price has exhausted its downward momentum, rejecting the 15-minute EMA chart and will soon resume its upward momentum.
This is an easy exercise and can be done once or twice a day, taking only a few minutes.
Beware of the price Bucking the trend
Once you see the price of 200 EMA in the 15 minute chart, while it is on the opposite side in the 4 hour and 1 hour chart, sit down and take note. Observe carefully and take the opportunity to enter and do some pips.
After a little practice, you will see how extremely powerful this simple Forex strategy is, which certainly deserves a place in your set of trading tools.