200 EMA Forex Trading Strategy
What is the significance of the 200 EMA?
The most important significance of the 200 EMA is it tells you whether you have an uptrend or a downtrend. If price is making Higher Highs above the 200 EMA, you have an uptrend. If price is making Lower Lows below the 200 EMA, you have a downtrend. If price is zig-zagging sideways through the 200 EMA, you have a ranging market with no clear uptrend or downtrend. This information is pretty significant, if you want to trade with the trend as an additional confluence.
Is the 200 EMA better than the 50 or 100 EMA?
Hands down, the 200 EMA is far better than the 50 EMA or the 100 EMA. You should never use any EMA below the 200 EMA, otherwise you really have no clue what you’re doing. In trading, higher time frames and higher EMAs always trump lower time frames and lower EMAs. Do yourself a favor and never use anything below the 200 EMA. As a matter of fact, you should never use anything below the 4 Hour Chart 200 EMA, to be even more specific. It does you no good to know the trend on a lower time frame. It’s the higher time frame trend that matters. To reap the full benefits of a 200 EMA strategy, you need to make sure that you’re using the 200 EMA on a higher time frame chart, such as the 4 Hour Chart or the Daily Chart.
What about the 200 SMA vs. 200 EMA?
There isn’t too big of a difference between the 200 SMA and the 200 EMA. Therefore, you can use whichever one you prefer. If you have always used the SMA, as opposed to an EMA, you can simply stick with the 200 SMA. The difference is marginal. However, it’s extremely important that you use the 4 Hour Chart or the Daily Chart version of either the 200 EMA or the 200 SMA, otherwise it will be completely useless. To know the real trend, you need to use the 200 EMA or the 200 SMA on a higher time frame chart, such as the 4 Hour Chart or the Daily Chart. The 200 EMA Forex Trading Strategy video above provides the right settings for the 4 Hour Chart conversion if you prefer to trade on lower time frame charts such as the 1 Hour, 30 Minute, or 15 Minute Charts.
200 EMA Strategy for Long Term Trading
Long term traders and investors can utilize the Daily Chart 200 EMA to understand if an equity is doing well and also for identifying excellent buy opportunities. If you’re investing in a particular equity for the long term, you ideally want to see the price continually making Higher Highs above the Daily Chart 200 EMA. This indicates that the equity is doing well. Sometimes the price might fall below the Daily Chart 200 EMA if the equity is not doing well or if there is some negative news about the equity. However, when the equity gets back on track, the price will hop back above the Daily Chart 200 EMA. This hop signifies a major trend reversal and is a signal for a potential buy opportunity. If the equity continues to do well after the hop, you would see Higher Highs above the Daily Chart 200 EMA signifying the start of a new uptrend.