Price action traders typically like to use multi time frame analysis when finding trading opportunities. Does The 200 EMA Work On All Time Frames? Now this isn’t bulletproof by any means and there is still a chance this trade would reverse through the 200 EMA and lose, however, with correct risk management this is a potential trading opportunity. Price rejected, then broke a key support/resistance level, followed by breaking through a very prominent trend line. If we drop to the 1 hour chart, which in this case is a lower time frame, we can see a clear entry into the trade. The 200 EMA is not consistent enough with reactions to just trade purely at the touch of the EMA, we would need to find another few confluences to actually enter a trade. On AUDUSD on the Daily time frame, price has rejected the 200 EMA and moved aggressively to the downside. This provides some great trading opportunities… The 200 EMA can be so powerful that sometimes price will just fall away from that average and reject price in that area. One of the most common ways to trade using the 200 EMA is to actually trade rejections from the EMA. With your stop loss just above the 200 EMA, the risk to reward on this trade would have been huge. This resistance also formed a head and shoulders formation, making another trading opportunity for price action traders. On AUDCHF here on the daily chart, we can see that price moved below the 200 EMA (indicating a sell), then rejected a resistance. Taking a long trade here was very smart and even just using a H4 bullish engulfing candle for an entry, would have resulted in a huge risk to reward trade. As shown, price came to a key support level, with the bullish 200 EMA confluence as well. Price was below the 200 EMA, then moved up in a large bullish move and started to retest above the EMA. In this chart, we can see the USDCAD on the 4H time frame. Having the multiple trading confluences can make for high quality opportunities with great risk to reward ratios… This is most commonly some type of support and resistance. My favourite way, and the most common way to trade the 200 EMA in forex markets is to combine it with another form of price action confluence. Using The 200 EMA With Support And Resistance If we were trending below the 200 EMA, we would be looking for selling opportunities instead. We can assume that the price is going to continue to the upside, until the 200 EMA is broken. The trend is confirmed by the fact the price is above the 200 EMA. On USDJPY daily chart, we can see a bullish trend. This is as simple as it sounds and forms the bedrock of a lot of traders bias! One way to use the 200 EMA in your forex trading is to use it as a directional bias. Let’s take a look at the 3 ways I personally use in my trading… 1. There are multiple ways to use the 200 EMA in your forex trading strategies. This is in no way bulletproof but it can certainly help to avoid getting caught on the wrong side of a trending market.Īs you can see in this example, looking for short trades on EURUSD 4H as price was trading below the 200 EMA would have given you an edge in the market.
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