The shorter the period, the more sensitive the indicator line to price movement. Like other MA types, EMA is a customizable indicator, meaning that traders can freely choose their periods. Compared to other strategies, it is relatively easy to learn and use, making it suitable for both beginners and professionals.īasically, Exponential Moving Average (EMA) is one of the most commonly used indicators in forex trading. If you're still unsure about which strategy suits you best, you might want to try the 200 EMA trading strategy. Many traders like to jump around while trying different strategies and end up quitting. You only need to remember testing it on a demo account first before even thinking of using it live.How to use 200 EMA as a simple but powerful strategy? Despite its common setups, there are good trading opportunities to find if you can utilize 200 EMA properly.Īs a trader, selecting a suitable and effective trading strategy is definitely not the easiest task. As long as you get the general idea of the technical analysis behind 2oo EMA and other tools, there should be no difficulties in arranging your own indicator combo that suits your understanding. The crossing and the addition of Stochastic are just some ways to spot the right moments to enter and exit the market. The EUR/USD chart below describes the 200 EMA strategy with Stochastic indicator:Īll in all, using 200 EMA strategies basically revolves around the indicator's main purpose to identify the price trend. The Stochastic indicator should be above 80 and moves to get below the level to show a reversal from an overbought condition.
So, looking for buy opportunities would be such a waste of time. Although the price is initially located above the EMA lines, it is not quite in an uptrend as there are no higher highs and lower highs confirming the situation. The GBP/USD chart above displays an extreme difference during which the EMA lines are diverging and when the indicators move very close to one another. In a situation where market uncertainties will always prevail, making a decision with more confirmations can lead to a great difference in your trading success and profitability. So when the lines are converging, the trend is assumed to be getting weaker for the indicator lines are also about to cross each other.Īlthough the additional analysis doesn't really add a completely new way of looking for trading opportunities, spotting 200 EMA and 50 EMA divergence can be a great help in entering the market with a stronger confirmation. Theoretically, the further the distance between 50 EMA and 200 EMA, the stronger the trend. What makes it distinctive is the use of divergence analysis to further confirm the trend momentum. This strategy basically adopts the same methods as the previous strategy. Hence, a crossover between the two lines can identify the change of trend. The 3 best strategies below are therefore specially chosen as alternatives to try out:Īs an Exponential Moving Average calculated for the past 50 periods, 50 EMA serves as the short-term (fast) line to the 200 EMA's long-term (slow) line. But what about other strategies? Surely, there are others we can find especially if we're talking about an important indicator like 200 EMA. One example of the 200 EMA strategy and its key principles have been discussed in this article. In other words, bounces and breakouts from the 200 EMA are considered great indicators of major turning points where there are huge possibilities to earn profits. The importance of 200 EMA even goes as far as affecting the market psychology since many believe that price reactions around the line are mostly significant. Price moving above the 200 EMA line would signify a bullish trend, while a movement below the 200 EMA is considered a bearish trend. Similar to its SMA counterpart, 200 EMA is typically applied in a daily chart to indicate changes in the market sentiment. One of the most commonly used EMA periods is 200 EMA. Apart from defining the predominant trend, using EMA can help traders with spotting entry and exit points, as well as setting up a plan with reliable dynamic support or resistance. EMA itself is a trend indicator with multiple functions. Trading with the Exponential Moving Average (EMA) is commonly known among traders as there are numerous strategies that can come with it. The 3 best strategies in this article could be a start if you want to try trading with the 200 EMA. There are limitless choices of trading strategy when it comes to the reliable 200 EMA indicator.
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