Forex Trading Strategies With EMA 200 Indicators For Daily Traders
This strategy uses the 200-day EMA indicator. Traders will open positions using three time frames, daily, 4 hours, and 1 hour.
The exponential moving average (EMA) indicator is used to improve the appearance of a simple moving average (SMA) that is lagging or tends to react slowly. EMA is calculated by giving more weight to the final price so it will react more quickly. This indicator works well on all time frames and is often used by daily traders. The shorter the period used will be the faster EMA reacts to price changes. One simple but popular strategy is the use of the 200-day EMA at a 1-hour time frame.
With this strategy, the trader will open a position in the direction of the trend, with the buy the dip or sell the rally method. The key to this strategy is to determine the direction of the trend with the 200 ema indicator.
Why period 200, not others like EMA 100, EMA 50 or EMA 20? Because EMA 200 is very popular and used by many forex traders. Deciding trend with EMA 200 is very easy. When under the EMA 200 indicator curve, it is assumed that the price is moving downtrend, and when above the EMA 200 it is assumed that the price is being uptrend.
This strategy uses a daily time frame and 4 hours (4-hour) to determine the direction of the trend, and a time frame of 1 hour to open trading positions:
On the daily chart, determine the direction of the trend by observing the position of the price movement against the 200 ema indicator curve. The trend on the daily chart is the main trend.
On the 4-hour chart, observe the trend direction to confirm the main trend.
Observe also the trend direction on the hourly chart. If in line with the main trend and trend on the 4 hour chart, then open the position with buy the dip or sell the rally method, which is buy at the time of pull back or sell at bounce time.
Here’s an example of trading on AUD / USD between 26 to 27 June 2013:
From the daily chart and 4 hours above, AUD / USD is moving downtrend as on both charts the price moves below the EMA 200 indicator curve.
On the hourly chart, it looks like the price is also moving below the EMA 200 indicator curve, or is downtrend, then we will wait for the opportunity to open a sell position. We will entry sell when the price bounce (move back and forth) after cutting the curve EMA 200.
As confirmator, we can use stochastic indicator. Entry sells when the% K curve of the stochastic indicator cuts the% D curve from top to bottom. Stop level (stop loss) is determined around the highest level before the bounce, and profit target is determined at the lower swing level or nearest support level.
Things to note:
- If the trend on the hourly chart is different from the daily chart and the 4 hour chart, then wait until the trend is unidirectional.
- If the trend on the hourly chart is in line with the 4 hour trend but different from the daily trend, then temporarily avoid trading on the currency pair, because it can take days to wait for the trend on the 3 charts in the same direction.