Trading the 200ema on M5 chart?

[Vonkk]

Hey Alec, how are you getting on with the ema method in the past week? I've just begun properly looking into using MA's myself, as like you I find a lot of indicators like MACD and stochastic lag.

Goin to start looking into the above methods myself from the ideas posted on this board and post any ideas that I think relevant! Lets keep this going

Martin

 

[mrsoul]

Hi There,

Can any experienced traders point me towards strategies regarding the 200ema?

I've just completed a decent week, but noticed lately on the 5 minute charts that, in a down trending market (GBP USD, and EUR USD), that the 200ema which I've recently plotted on my charts, has acted as a reliable Resistance line followed by big moves down. Is this what's called a pivot point?

Had I taken short trades above the 200ema, even with an aggressive stop loss, I could have made substantial gains. I think with a 20 pip stop loss, one would have enjoyed a 50/50 win/loss ratio but probably a 75/25 profit/loss ratio taking a short entry 5 pips above the 200ema.

I can't find the source I read some time ago about strategies based around the 200ema, and I'm already having success using MACD divergence and crosses for entries. This week, using the 200ema as an entry point would have been far more profitable - maybe this only works in a steeply trending market. I wondered if anyone could short-circuit my resaearch by pointing me in the right direction.

P.S. I'm a newbie (quite obviously from this question!)

Many Thanks,
Alec

The problem with trading any movng average is that it works good in steep trending markets but you will get killed in a choppy or range-bound market.

I don't think there is any money, in the long run, trading price crosses of a moving average.

If you can make money this way, the more power to you.

 

[aleclaw]

Hey Alec, how are you getting on with the ema method in the past week? I've just begun properly looking into using MA's myself, as like you I find a lot of indicators like MACD and stochastic lag.

Goin to start looking into the above methods myself from the ideas posted on this board and post any ideas that I think relevant! Lets keep this going

Martin

Hi Vonkk,
Good to hear from you, and yes, I think there's mileage in exploring the opportunities surrounding the 200ema and the effect it seems to have on directional changes.
But there's a caveat - as mrsoul so rightly points out - it doesn't give reliable results in a range bound market - as I found out today, and has already been pointed out earlier in this exchange by other experienced traders.
In a steeply trending market, the 200ema can provide a great opportunity to buy dips and sell rallies off retracements, but should be treated with caution in sideways markets.
But I've had some great trades using the 200ema in the last three weeks, based on a well documented method (similar to the three ducks method detailed on this excellent forum), that says if the price is well above the 200ema on the 4 hour chart, well above on the one hour chart, but below on the 15 minute chart - look to buy. (The reverse applies for sell trades).
Wait for the price to fall to the next level of strong support, allow for a further 20 pips of "stop hunting" below support, and then enter a buy trade. This is an aggressive strategy because you are trading against the prevailing trend, but with an affordable stop loss ( I use 20 pips), can bring terrific results.
At the moment I'm still serving my apprenticeship, and only trading one lot size per trade, but can see how trading two lots would increase profit opportunities with this trade, i.e. open with two lots, close one lot in profit once 15ema is crossed, move stop loss to break even, and enjoy a free trade on the second lot, closing only when the 15ema is crossed back against you - back test it and see the potential in a trending market.
I would be really interested to hear other ideas, and thanks to everyone who's submitted comments and help with this thread,
Cheers,
Alec

 

[Vonkk]

Alec, as you pointed out, using EMA's does work quite well in a trending market but doesn't when its consolidating..........so what? Nothing that I know works in every type of market whether its trending up / down or ranging!
Be prepared to be discretionary with your systems, if you cannot see that the market is trending, perhaps switch to a method (devise a method) which works better during a consolidation, like morning today in th EUR/USD and GBP/USD markets where the market is stuck between a range. Indicators tend to work reasonably well during these types of markets.
The 3 ducks method looks to be a very good method, and is very adaptable to the individual, as I can see you have adapted it slightly! Have you looked at Newton's Breakout Strategy too? More bullets to your clip as you progress.......

Martin

 

[willfx]

Seeing as this thread is about specific 200ma related 'strategies' I would voice the opinion that there is no strategy that can use the moving average in isolation. That is to say moving averages are good for one thing and that is assessing the current trend with the moving average allowing one a crude filter for taking long or short trades i.e. the trend is your friend and trade in the direction of it, to go against it is suicide. Yes the 200ma provides an area of support/resistance and pullbacks are generally reliable but no less reliable than price action is alone. Waiting for the touch of the 200ma allows too much time to pass.
Abello posted some nice charts, from the majority we can see the break of at least two bull trendlines with the 2nd coming to test the prior swing high, then another rally to test the current swing high followed by a trendline break and a failed reversal at the trendline. Yes, it hits the 200ma, but the point is you blindly follow a 200ma system you may not have an appreciation for what price is telling you i.e. that is that the market is rejecting higher highs and predominantly bearish. Your moving average systems will eventually fail and you'll wonder why. By all means have the MA on your chart but don't use it as the sole basis for your trades.

"Wait for the price to fall to the next level of strong support, allow for a further 20 pips of "stop hunting" below support, and then enter a buy trade. This is an aggressive strategy because you are trading against the prevailing trend, but with an affordable stop loss ( I use 20 pips), can bring terrific results."

I wouldn't necessarily call this stop hunting. Although stop hunting does exist, in many cases what people may perceive as smart money trying to stop them out is a test of the old extreme; looking for a rejection of bearish sentiment. A 20 pip stop loss is arbitrary, assuming you're trading counter trend in the short term, but with trend in the long time frame you will require a sign of the bull strength before you can proceed. That is to say, you require a break of the bear trendline, a bullish signal bar (such as a pin bar, BO etc.). Your stop should then be below this signal bar (or at retracement etc... assuming it tests the old extreme) or below the prior swing low at support.

 

[fernanj]

Hi There,

Can any experienced traders point me towards strategies regarding the 200ema?

I've just completed a decent week, but noticed lately on the 5 minute charts that, in a down trending market (GBP USD, and EUR USD), that the 200ema which I've recently plotted on my charts, has acted as a reliable Resistance line followed by big moves down. Is this what's called a pivot point?

Had I taken short trades above the 200ema, even with an aggressive stop loss, I could have made substantial gains. I think with a 20 pip stop loss, one would have enjoyed a 50/50 win/loss ratio but probably a 75/25 profit/loss ratio taking a short entry 5 pips above the 200ema.

I can't find the source I read some time ago about strategies based around the 200ema, and I'm already having success using MACD divergence and crosses for entries. This week, using the 200ema as an entry point would have been far more profitable - maybe this only works in a steeply trending market. I wondered if anyone could short-circuit my resaearch by pointing me in the right direction.

P.S. I'm a newbie (quite obviously from this question!)

Many Thanks,
Alec

Hi Alec
I believe what you are looking for is a technique to trade "counter trend" the ema200.

This should not be a problem, provided that the ema200 has distanced itself considerably from the price action...then reversal becomes imminent! what I mean by this is that the price and the ema200 sooner or later catch up with each other.

When the above situation presents itself, watch out for high probability technical formations as there is the possibility of some "good pickings" provided you strictly monitor and manage the trade.

For indepth techniques and strategies to trade these setups and others take a peek at my website:

Power of Forex Indicators

all the best and success in your trading

Joe

 

[fernanj]

Hi Alec

apologies - I got the link mixed up , this is the correct one

Higher TimeFrame

all the best and success in your trading