Forex Day Trading #2

Forex Day Trading | Moving Average

This system uses the 200 period exponential moving average or 200EMA. You have to insert this moving average on your charts because it will tell you if you have to look for trade setups to buy or look for trade setups to sell. This is the most popular moving average in the trading markets; many people watch it and use it as a direction indicator. This strategy uses this moving average in the following way: when the price of any forex pair is completely above the moving average we start looking for trade setups to only buy the pair. When the pair is trading completely below this moving average, we will be looking for trade setups only to sell that pair. Let me show you more clearly what this means

Price action for this pair is completely above the exponential moving average, it never touches it. This is good; it means that you can start to look for trade setups. We will do that later. If the price does touch the 200EMA but quickly bounces back up like it did in the chart above at the end there, that is also a good thing. Now let me show you when not to look for trade setups even if the price is above or below the moving average

price is above the moving average for the most part but it intersects with it there in the middle of the chart and does not bounce back up quickly enough. The pair trades there in the zone of the EMA, passing it multiple times, returning to the upside, and then crossing it again to the downside. This is not good; it means that the uptrend in this case, is not strong enough so you will not be looking for trade setups if you see this kind of price action behavior. You always have to look for the price action to be completely above or below the moving average or just touching it for a brief period and then bounce off of it and resume its direction. There is one more important thing about the moving average that you always have to keep an eye on. The slope of the moving average has to be always in the direction of the price action. In the two charts above you can see that the direction of the price action is clearly to the upside and so is the slope of the moving average, it’s pointing up. On the last chart, in that middle section that we discussed you can see that the moving average has no slope there, it is sideways. That is a good indication to stay out of the market.

The moving average is almost horizontal, and the price action is ranging, it’s going up and down crossing the EMA.