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Are you new to trading, seeking out a reliable Forex strategy?
Many newer traders face the challenge of trying to identify the trend on the intra-day level in order to make their Forex strategy work.
This problem can be alleviated by using the 200 EMA – (Exponential Moving Average).
In surveys it was found that Forex traders all around the world vote the 200 EMA as one of their top indicators. So that is reason enough to use it considering the psychological effect it can have once price starts getting within spitting distance of the 200 EMA.
Using The 200 EMA Strategy
This Forex strategy requires you to set up 3 different time frame charts:
A 4 hour chart
1 hour
15 Minute Chart
On each of the charts in the 3 different time frames, add the 200 EMA indicator and choose a color, e.g. red, to make it easily recognizable.
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 scroll through the various currency pairs you like 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
What you are looking for is any currency pair that bucks the 200 EMA on the 15 minute chart.
So for example, look at the EUR/USD pair and note the position of price relative to the 200 EMA on the 3 time frames.
If price is BELOW the 200 EMA on the 15 minute chart while it is well ABOVE it on the 4 hour and 1 hour charts, then it is going against the trend!
So price is temporarily going against the overall trend and is in a retracement mode.
Using the fundamental trading principle of “buy the dips in an uptrend”, “sell the rallies in a downtrend”, look for a suitable entry point.
Using the EUR/USD example, you would look out for a distinctive candle that would indicate possible price exhaustion as it bucks the trend on the 15 minute chart. The probability is it would soon resume moving in the direction of the trend.
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
As soon as you see price crossing the 200 EMA on the 15 minute chart whereas it is well beyond the 200 EMA in the opposite direction on the 4 and 1 hour charts, FOCUS! Snatch the opportunity to get into the market and make a profit.
After a little practice you will see how extremely powerful this simple Forex strategy is – certainly deserving a place in your trading tool kit.
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