Swing Strategy Basic #7: (200 EMA Trading Strategy)

The 200 EMA Trading Strategy is a very simple and really easy to follow forex trading strategy that you will find really appealing and has the potential to bring your hundreds of pips a month.

With the 200 EMA Trading Strategy you are trading with the trend and effectively buying low and selling high.

You see, one of the biggest issues facing new forex traders is how to identify the main trend-whether the market is going up or going down?

Well, the 200 EMA is one forex indicator which can help you.

Why 200 EMA? Why not use other EMA’s like 100 EMA, or 50 EMA or 20 EMA or 10 EMA?

Because 200 EMA is one very popular forex indicator used by lots of traders and that’s why we use 200ema.

Here’s what you need to know about the 200 ema:

• when price is below the 200 ema, that’s a downtrend
• when price is above the 200 ema, that’s an uptrend.

THE 200EMA TRADING STRATEGY AND HOW IT WORKS

The 200ema strategy is a multi-timeframe forex strategy which means you need the daily chart, the 4hr chart and the 1hr chart.

Here are the steps to trading this forex strategy

1. first, place 200ema on your daily chart. See if its and uptrend or a downtrend. The daily chart  determines the main trend.
2. next you swithc to the 4hr chart and see where the 200ema is relative to the price, is it in the same trend as the daily chart.
3. if so, next is you switch to the 1hr chart and check if the 1hr chart is in the same trend as the daily and the 4hr charts.
4. It is in the 1hr chart where your trade entries are executed when the trend in the 1hr chart is the same as the 4hr and the daily charts.
5. what we want to do here is to “buy the dips” and “sell the rallies” in the 1hr timeframe.

 HERE’S HOW TO DO IT:

step1: First, check the daily time-frame, is the trend up or down?

Step2: Check the 4hr timeframe, is the trend the same as in the daily chart?

Step 3: Check the 1hr chart, is the trend same as in 4hr and daily chart? (click to enlarge if you cannot see the chart below properly)

Step 4: Wait for price to come to the 200ema and trade the bounce of price on the 200ema line.

Here’s how to trade the bounce on the 200ema line:

• the best way is to use price action by the use of reversal candlesticks. Click this link on what reversal candlesticks to use.
• once you get confirmation with a bearish reversal candlestick pattern, place a sell stop order just 3-5 pips below the low of the reversal candlestick(if this is a downtrend and you are selling) or
• once you get confirmation of a bullish reversal candlestick(for an uptrend trade), place a buy stop order 3-5 pips above the high of that bullish reversal candlestick pattern.
• you stop loss should be place at a minimum, 10-15pips outside of the 200ema line.
• use the previous swing high or swing low on the 1hr as your take profit target levels.
• for managing your trade as it becomes profitable, use the trailing stop technique where you move your stop loss and behind each subsequent swing lows or high as your trades moves in favour so that you continue to lock in your profit as price travels towards your take profit target level.

SOME ISSUES WITH THE 200 EMA TRADING STRATEGY

• what happens if the 1hr trend is different from the 4hr and the daily timeframes? Well, wait until 1hr trend is the same as the 4hr and the daily and then trade the bounce off the 200 ema.
• what happens if the 4hr and the 1hr trend are the same and the daily is different? Same answer as above: every timeframe have to match and have the same trend. If one timeframe is different, you wait untill all are the same trend.

So there you have, the 200 EMA Trading Strategy…its a very simple and easy forex swing trading system which you can start using.