200 EMA Forex Trading Strategy Facts About This Technique

To try and build a visual impression of volatility in the market, traders rely on numerous tactics – including strategies like the 200 EMA Forex trading strategy. The main objective is to help traders make better decisions on when and where to enter trades.

Here at CAPEX, we think that the more you can learn about trading strategies the better, so we’ve put together the following guide covering the basics of the 200 EMA Forex trading strategy, so you can decide for yourself if it fits your needs.

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More than 55 CFDs on Forex

The 200 EMA strategy is ideal for trading foreign currency and here at CAPEX we offer you over 55 different Forex pairs for you to apply the technique. Trading is all about finding opportunities and we believe having options is important, so we offer trading in a variety of currencies from around the world.

Of course, whilst this strategy is well suited to the Forex markets, it can easily be applied to all manner of financial instruments and even combined with other strategies. Here at CAPEX, we offer trading in over 2100 instruments, so you certainly won’t be short of markets to try the strategy on.

The latest platforms for trading

Like most trading strategies, 200 EMA is based on technical analysis, and that’s why we at CAPEX offer some of the best trading software on the market. Whether you use our proprietary web trader or the MetaTrader 5 platform, you’ll have access to some of the industry’s most powerful charting tools.

As we’ll discover in this guide to the 200 EMA Forex trading strategy, having a customisable and comprehensive range of charts and metrics is crucial for implementing the strategy effectively.

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An overview of the 200 EMA Forex trading strategy

200 EMA Forex trading strategy is based around the Exponential Moving Average of a currency pair. The approach is extremely popular as it is relatively simple to apply and even novice traders can quickly get to grips with how it works.

Fundamentally, the 200 EMA Forex trading strategy offers a way for traders to identify longer-term trends within an asset’s price movement and use the information to form their trades.

What’s behind the 200 EMA?

The EMA of an asset is calculated with the following equation:

  • Closing price x multiplier + EMA (previous day) x (1-multiplier).

The 200 EMA is a chart line drawn across 200 of these figures. This line is then used as an indicator for when an assist is in a downward or upward trend.

Ultimately, the strategy is simply a means for traders to stick to that old adage: buy low/sell high. Being used to identify longer trends, the 200 EMA Forex strategy is particularly popular with swing traders. More information on this can be found in our guide on how to swing trade. Also, don’t forget that you can try this strategy risk-free with a CAPEX demo account, which is included with every account.

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Pros and cons of the 200 EMA Forex trading strategy

Just as with any trading strategy, using the 200 EMA approach has its strengths and weaknesses. The extent to which these are advantages of disadvantages will depend on the individual trader.

Pros:

  • Can be applied to numerous assets
  • Gives a simple reference for choosing entry/exiting points
  • Suitable for traders of any experience level to use
  • Helps identify longer-term trends than many other strategies

Cons:

  • Older data may be irrelevant or dated

It’s also worth bearing in mind that you can use the 200 EMA in conjunction with the other strategies you can learn and practice at CAPEX, which means you can take advantage of several approaches whilst ironing out any shortcomings.

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A step-by-step guide to using the 200 EMA Forex trading strategy

The 200 EMA Forex trading strategy is simply another tool that traders can use to plan their activity. If you think it sounds like something you’d like to implement in your own trading journey, then you’ll need to take the following steps:

Open a trading account

Of course, the first thing you’ll need to use the 200 EMA Forex trading strategy is an account that will provide you with the required charting tools. It’s important to choose the right provider so we recommend doing your research and paying close attention to which trading platforms a broker offers. For example, here at CAPEX, we offer both our proprietary and advanced WebTrader, as well as the popular MetaTrader 5 (MT5) platform, to ensure we cater to all levels of trader.

Learn to read charts

Like most popular trading strategies, the 200 EMA approach requires a robust understanding of how trading charts work and what information they display. At CAPEX, you’ll find our charting tools are comprehensive and highly customisable, meaning you can get your set-up optimised for your individual style, as well as any strategy you want to use.

Apply the 200 EMA

Once you are up and running in the markets, you’ll be ready to start using the 200 EMA Forex trading strategy. The first thing you need to do is set the chart to display the 200 EMA. The good news is that with powerful trading platforms we use here at CAPEX – such as MetaTrader 5 (MT5) – the console can actually apply the line for you. All you need to do is select it under the indicator options.

Identify trends

Once you’ve got your 200 EMA line on the chart, then the next thing to do is to look for trends. One of the biggest advantages to the 200 EMA Forex Strategy is just how simple it is to implement as you just have the one line. The general rule is that if the price is below the 200 EMA line, then there is a downward trend. If, on the other hand, it is above the line, then there’s an upwards trend. The steeper the slopes, the stronger the trend.

A key aspect of the 200 EMA strategy is using it across more than time frame – usually a one day, four hour and 1-hour chart. To apply the strategy to its fullest, you start by setting the 200 EMA line on the daily chart, then correlate it with the shorter timeframes.

If the EMA lines are confirmed across all three timeframes, then, according to the strategy, you have yourself a trend.

Make your trades

Once you’ve identified the trends, then you know when and where to enter the market. If the trend indicates upward movement, then it’s time to buy. Alternatively, if it looks like prices will continue downwards, then you have the option to short sell.

You also have the option of correlating the results of the 200 EMA line with another, say the Bollinger Band strategy or the Fibonacci trading strategy, which you can also learn at CAPEX.

 

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Things to remember about the EMA 200 Forex trading strategy

If you plan on using the EMA 200 Forex trading strategy, then by now you should have an idea of how to set it up. To give you the best chance of success, we suggest bearing in mind a few things to remember.

No strategy is infallible. The EMA 200 approach is merely a way of viewing existing data to try and identify trends and traders should not over-commit based on the results of applying the strategy.

Further to this, always remember that there are tools you can use to mitigate losses, should a position not go your way. For example, at CAPEX, both of our platforms offer stop-loss and take-profit order options. Having these in place means you can exit a position when it reaches the desired price, or have it close automatically if losses start to grow.

One of the best ways to strengthen the results of any strategy is by combining it with another. For example, why not check out our Donchian Channel strategy guide and see how this might be used in conjunction with EMA 200?

Conclusion – Trade Forex CFDs at CAPEX

The 200 EMA Forex strategy is hugely popular and very simple to apply. Of course, it isn’t a foolproof system and it’s important that novice traders manage their expectations accordingly. In a nutshell, all chart-based strategies are simply means to simplify and visualise what would otherwise be chaotic price movement.

Using the 200 EMA strategy allows users to see an asset’s previous price movement as a single line that, in theory, can be used to identify trends. However, this can be a powerful tool in the right hands and many traders have had success with the strategy, hence its ongoing popularity.

The 200 EMA Forex strategy is used by both day traders and swing traders and can certainly be a powerful addition to your trading arsenal. If you’re interested in learning more, why not try out the strategy for yourself, risk-free, using a CAPEX demo account? Join CAPEX today and start learning!

200 EMA Forex Trading Strategy – FAQ

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