The 200 Day Moving Average is voted as the number one trading indicator by a forex magazine. Personally I find the 200 day moving average as a very reliable and versatile forex indicator as it can perform quite a number of functions at the same time. In this post, I will be sharing with you the various ways you can use the 200 MA and integrate it into your trading system.
I usually plot 200 Exponential Moving Average instead of the Simple Moving Average because I find the EMA to be more dynamic and responsive compared to the SMA. Below are some of the ways you can make use of the 200 EMA.
1) As a Trend Identifier: If you have read my other blog post talking about the moving averages, you will know that they can be used as a trend identifier. All you need is to observe their slope and you will be able to tell the trend of the market.
If you see the 200 EMA sloping upward, you are in an uptrend and if you see the 200 EMA sloping downward, you are in a downtrend.
2) As a Strength Identifier: Even when you are in an uptrend, the trend can be described as quiet or strong. There are basically 2 kinds of trending market.
- Trending and Quiet
- Trending and Volatile
If you see the gradient of your 200 EMA to be steeped, you are in a trending and volatile market. If you see the gradient of your 200 EMA to be gentle, you are in a trending and quiet market.
3) As a Support or Resistance Level: Out of so many different value of moving averages, the 200 day moving average is the most significant. If you take a look at your trading chart, you will find the market respecting it more than any other EMAs. Therefore it can be used as a strong support and resistance level.
4) As an Entry Signal: Some traders make use of the 200 EMA to place their entry. When the price moves above it, you can then enter your LONG trade. If the price moves below it, you can then enter your SHORT trade.
Similarly, you can also exit your LONG trade when the price moves below it and vice verse.
Now that you know the power of the 200 day moving average and how to use it in your trading, you can start to integrate it into your trading system and make money from it.
Note to Readers
Do note that the above strategy is a general strategy that has not been fine tuned. In order for you to trade with it, please fine it tune on a demo account. If you do not know how to fine tune a forex strategy, please read the below
For those of you who are totally new to forex trading, I will suggest that you read through this blog post that I have written for beginners
If you are interested to learn how I do my forex technical analysis, you can take a look at the post below