Forex Swing Trading Strategy #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 are hopefully buying low, selling high, and at times catching a major move in the market carrying you into a very large swing trade.

In order to do that, there is one very important thing we must know about the market.

We want to know is what the trend is.

Remember that there will be a different trend on each time frame and it is perfectly acceptable to have a downtrend on a 4 hour chart and an uptrend on the daily chart.

In order to objectively determine the trend on the time frame of our choice, we are going to use the exponential moving average indicator that every charting platform will have.

More specifically, we are going to use the 200 EMA for this trading strategy

Why the 200 and not another one like the 50 EMA or the 20 EMA?

Because 200 EMA is one very popular Forex indicator used by lots of traders and is used to determine the main underlying trend regardless of any corrective move in the price action.

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 200 EMA TRADING STRATEGY AND HOW IT WORKS

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

Here are the 5 steps to trading this Forex strategy

1. Place the 200 ema on the daily chart of your Forex pair. See if its and uptrend or a downtrend. The daily chart  determines the main trend.
2. Switch to the 4 hr chart and see where the 200 ema is relative to the price, is it in the same trend as the daily chart.
3. If yes, switch to the 1 hr chart and check if the 1 hr chart is in the same trend as the daily and the 4 hr charts.
4. It is in the 1 hr chart where your trade entries are executed when the trend in the 1 hr chart is the same as the 4 hr and the daily charts.
5. What we want to do here is to “buy the dips” and “sell the rallies” in the 1 hr time frame.

1. DAILY CHART SHOWS UPTREND

200 EMA Trading Strategy

2. FOUR HR CHART SHOWS UPTREND – SAME AS DAILY 200 EMA

4 HOUR FOREX CHART

3. HOURLY CHART HAS PRICE ABOVE 200 EMA

1 HOUR FOREX CHART WITH 200 EMA

4. TRADE 200 EMA BOUNCES IN DIRECTION OF DAILY TREND

200 EMA TRADE ENTRY CHART

200 EMA Trading System Rules

Once price lines up on the right side of the EMA on all charts, we look to trade bounces from the 200 moving average.  We will use long trends for this example.

• Use price action by the use of reversal candlesticks. Click this link on what reversal candlesticks to use.
• Once you get confirmation with a candlestick pattern,  place a sell stop order just 3-5 pips above the high of the reversal candlestick (if this is a downtrend and you are selling)
• Stop loss should be place at a minimum, 10-15 pips outside of the 200 ema line or below the levels indicated with the white arrows
• Use previous swing high or swing low on the 1 hr 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 behind each subsequent swing lows or high as your trades moves in favor so that you continue to lock in your profit as price travels towards your take profit target level.

Common Issues With The 200 EMA Trading System

Every trading method will have times where not everything is running according to your plan.  With this trading strategy, there are 2 issues that are quite common.  Dealing with them is quite simple though.

What happens if the 1 hr trend is different from the 4 hr and the daily time frames?

Wait until 1 hr trend is the same as the 4hr and the daily chart which you can see when price trades above the average.  Trade the bounce off the 200 ema.

What happens if the 4 hr and the 1 hr trend are the same and the daily is different?

Every time frame has to match and have the same trend. If one time frame is different, you wait until all are the same trend.  This can take a while so be patient!

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