20 EMA Bounce Forex Trading Strategy

This is a price action trading system that uses 20 EMA and it is called the  20 EMA Bounce Forex Trading Strategy and it is a really simple trading system even a completely new forex trader can follow easily.

But what are the best times to trade it?

Well, I suggest you trade when the markets are moving fast and there’s a lot of trading volatility and the two trading sessions that fit this would be the London and New York Trading Session.

 

THE PURPOSE OF THE 20 EMA

The 20 EMA acts like a “bounce line’ for candlesticks. So what this means is this:

  • in a downtrend, price will head down but at some point in time, you will see price rise up and head up to test the 20 ema line and if the downtrend is strong, you will see that that 20 ema line will keep pushing back price down.
  • This is called “retest” or retesting of the 20ema line and this can happen once or a few times before the retest fails and 20 ema line is eventually broken.
  • So as a forex trader, what you are waiting for is for the retest to happen and in this case, you are watching only one candlestick…the SIGNAL candlestick.
  • The signal candlestick is the candlestick that FIRST heads back up and touches the 20 ema line after price had been heading away from it for a time. If the 2nd candlestick after the signal candlestick still touches the 20 ema line, even that is NOT THE SIGNAL CANDLESTICK.

So I’ve explained the situation about selling setup here…what about the buying setup?

Well, its exactly the opposite and you should be able to figure it out yourself very easily after you’ve seen the charts below.

 

HERE ARE THE TRADING RULES OF THE 20 EMA BOUNCE FOREX TRADING STRATEGY

A few things you need to know:

  • when prices are closing above the 20 ema, this is an uptrend situation
  • if prices are closing below the 20 ema, this a downtrend situation
  • the candlestick that touches the 20 ema first is the SIGNAL candlestick. That signal candlestick is the only candlestick you should be interested about because your buy or sell pending orders depend on the high and low of the signal candlestick.
  • in an uptrend market, you place your buy stop pending order 1-2 pips above the high of the signal candlestick. If that order is not activated by the next candlestick that forms, you cancel your order.
  • in a downtrend market, place your pending sell stop order 1-2 pips below the low of the signal candlestick but if that pending order is not activated by the next candlestick that forms, then you need to cancel that pending order.
  • place your stop loss a few pips (5-10 pips depends on what timeframe you are using as well) below the low of the signal candlestick for a buy trade and and above the high of the signal candlestick for a sell trade.

Here’s an example of a buy trade setup of the 20 EMA Bounce Forex Trading Strategy:

20 EMA BOUNCE FOREX TRADING STRATEGY BUY SETUP

Here’s and example of a sell trade setup of the 20 EMA Bounce Forex Trading Strategy:

20 EMA BOUNCE FOREX TRADING STRATEGY SELL SETUP

 

Here are examples of buy setups that you should not take trades on:

20 EMA BOUNCE FOREX TRADING STRATEGY INVALID TRADING SETUPS

Examples of Sell Setups You Should Not Trade:

Similar but opposite to the buy setups shown above that you should not trade, here are few examples of sell trade setups you should avoid trading as well:

20 EMA BOUNCE FOREX TRADING STRATEGY INVALID TRADING SETUP

TAKE PROFIT TARGETS

A few options you can use to take your profits:

  • use previous swing highs as take profit target for buy trade
  • use previous swing lows as profit target for sell trade
  • or set profit target at 3 times what you risked initially.

YOU CAN USE SPECIFIC PRICE ACTION CANDLESTICK TO HELP YOU

Now, what I’ve shown above in terms of trade entries of the 20 EMA Bounce Forex Trading Strategy is to just place your pending stop orders above the high or lows of the signal candlestick.

What if you wanted something more definite?

What if you wanted specific reversal candlestick to watch during these 20 ema retests?

Well, if you are like that, I recommend these: top 10 candlestick patterns

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