Price EMA Reversal Forex Trading Strategy

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Price EMA Reversal Forex Trading Strategy

Taking trades at the start of a trend and exiting it at the end, this is the kind of trade that traders dream of. Most traders daydream of being able to take these perfect trades every single time they trade. Why not? These are the kind of trades that could make an account grow exponentially. However, this is easier said than done. You might catch a few of these trades every now and then, but it would be near impossible to do this every single time.

Catching trades near the start and near the end of a trend is much more doable. Many traders make so much money doing these types of trades. This is called a trend reversal type of strategy. Traders follow the market as the chart starts to show signs of reversal. However, many traders still find it difficult to anticipate such trend reversals.

One of the best ways to anticipate trend reversals is by using a technical indicator. It allows traders to objectively identify if the market is starting to reverse. It lessens the guess work and allows traders to visually identify a reversal.

Price EMA Reversal Forex Trading Strategy uses a technical indicator that allows traders to visually identify these trend reversals. At times, it could also pinpoint the starting point of a trend coming from a market congestion.

Price – EMAs Indicator

Price – EMAs indicator is a custom technical indicator which helps traders identify the direction of a trend. It does this by comparing the current price of a candle and some Exponential Moving Averages (EMA).

This indicator is an oscillating indicator composed of three lines. The lines represent the difference between price and the three different EMAs. The figures are then plotted on the same window. In this setup the fastest line is plotted green, the mid-term line is plotted blue, while the slowest line is plotted red.

The three lines could represent the direction of the trend based on two factors. Lines that are positive could indicate a bullish trend, while lines that are negative could indicate a bearish trend.

The lines could also present trend direction based on how they are stacked. Having the fastest line above the mid-term line and the slowest line indicate a bullish trend, while having them stacked inversely indicate a bearish trend. Based on this principle, the crossing over of the lines could also be used as a trend reversal signal.

Trading Strategy

This trading strategy is a simple trend reversal strategy based on the Price – EMAs indicator. It is a trend reversal strategy based on the long-term trend, which allows traders to maximize profits.

Trades are first filtered based on the 50-period Simple Moving Average (SMA) line. This would indicate which direction that market has bias on. Trade direction is based on where price is in relation to the 50 SMA line.

Trade signals are considered whenever the green line of the Price – EMAs line crosses the blue and red lines and starts to fan out.

Trades are held as long as the trend is in place. Trades closed only when price closes on the opposite side of the 50 SMA line, which could indicate that end of the trend.

Indicators:

  • 50 SMA (Green)
  • price-emas (default setting)

Preferred Time Frames: 1-hour, 4-hour and daily charts

Currency Pairs: major and minor pairs

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price should be above the 50 SMA line.
  • The green line of the Price – EMAs indicator should cross above the blue and red lines.
  • The lines on the Price – EMAs indicator should start to fan out.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss at the fractal below the entry candle.

Exit

  • Close the trade as soon as price closes below the 50 SMA line.

Price EMA Reversal Forex Trading Strategy

Price EMA Reversal Forex Trading Strategy 2

Sell Trade Setup

Entry

  • Price should be below the 50 SMA line.
  • The green line of the Price – EMAs indicator should cross below the blue and red lines.
  • The lines on the Price – EMAs indicator should start to fan out.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss at the fractal above the entry candle.

Exit

  • Close the trade as soon as price closes above the 50 SMA line.

Price EMA Reversal Forex Trading Strategy 3

Price EMA Reversal Forex Trading Strategy 4

Conclusion

This trading strategy is a long-term trend following strategy which allows traders to catch long-term trends near the start of the trend and close the trade near the end of the trend. This gives traders the most bang for their buck as it allows traders to profit with the highest-reward risk possible.

However, because it is a long-term trend reversal strategy. It also requires a lot of discipline and patience. Not all trades would be profitable because it is more difficult to predict long-term trends than short-term trends. The advantage is that those trades that do result in profit could produce so much returns in one trade.

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