Are you a relatively new trader looking for a solid forex strategy?

Many Forex strategies rely on clearly identifying the intra-day trend, and this presents quite a challenge for the newcomer to the market.

This problem can be alleviated by using the 200 EMA – (Exponential Moving Average).

Forex traders around the world voted the 200 EMA indicator as one of their all time favorites. That should make us sit up and take note. In view of the power of psychology, if that number of traders take note once price gets within reach of the 200 EMA, there is bound to be a reaction in the market most times.

Using The 200 EMA Strategy

This Forex strategy requires you to set up 3 different time frame charts:

4 hour

A 1 hour chart

A 15 minute chart

Now plot a 200 EMA indicator on each chart and, as a suggestion, color it red, for easy visual impact.

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 run your eyes over each of the currency pairs you have selected for this strategy.

There are about 9 different currency pairs with a pip spread less than 10, so many prefer just to trade these.

They are:

EUR/USD | GBP/USD | USD/CHF | USD/JPY | EUR/JPY | USD/CAD | AUD/USD | NZD/USD | EUR/CHF

Search through and see if price is going against the 200 EMA on the 15 minute chart on any of the currency pairs.

Using the EUR/USD pair as an example, check where price is relative to the 200 EMA on the 4 hour, 1 hour, and 15 minute charts.

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!

The overall trend is up, price has temporarily gone against the trend and is currently in a retracement.

You now need to look for a good entry point to get into the market in line with the basic principle of buying the dips in an up trend while selling the rallies in a down trend.

Say you were trading the EUR/USD pair, you would look at candle formations to see if there is a doji, or hammer, or any pattern that indicates price is exhausted and that it is about to resume the direction of the overall trend as shown on the 4 hour and 1 hour charts.

This simple exercise only takes a few minutes and can be done a few times during the day.

Watch For Price Bucking The Trend

Sit up, take note, when you see price going beyond the 200 EMA on the smaller time frame, the 15 minute chart, while on the larger time frames, 4 hour and 1 hour, it is well beyond the 200 EMA in the opposite direction. Seize the change to make a high probability trade and bank some profits.

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.