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.
The 200 EMA (Exponential Moving Average) can solve the problem.
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.
How To Use The 200 EMA
This Forex strategy requires you to set up 3 different time frame charts:
4 Hour Chart
A 1 hour chart
15 Minute Chart
Now add the 200 EMA indicator to each chart for the 3 time frames. You could color it red or whatever you prefer to make it stand out.
Preferably tile the 3 windows containing your 3 charts into a vertical fashion so you can see the 3 time frames next to each other. It will squeeze up the information on the charts somewhat but for the purpose of this strategy that doesn’t matter.
Now run your eyes over each of the currency pairs you have selected for this strategy.
Currency pairs with a smaller pip spread, i.e. less than 10 on most platforms, come to about 9 different pairs.
They are:
EUR/USD | GBP/USD | USD/CHF | USD/JPY | EUR/JPY | USD/CAD | AUD/USD | NZD/USD | EUR/CHF
Train your eyes to identify a currency pair that goes against the 200 EMA on the smaller time frame, 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 well above the 200 EMA on the 4 hour chart, well above the 200 EMA on the 1 hour chart, but BELOW the 200 EMA on the 15 minute chart, price is bucking the trend.
So the main trend is going up while price is now in retracement, temporarily going against the overall trend.
Look for a good point to get into the market in harmony with the basic trading maxim of selling rallies in a down trend or conversely, buying dips in an up trend.
In the example given above you would look for an opportunity to buy the EUR/USD, perhaps watching for a candle signal that price has exhausted it’s downward momentum, bucking the 15 minute chart 200 EMA and will soon resume it’s upward momentum.
This simple exercise only takes a few minutes and can be done a few times during the day.
Take Note When Price Bucks 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.
Once you see how powerful this easy Forex strategy is, after a little practice in a demo account, you will no doubt be convinced it deserves a place in your trading tool kit. - 23687
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