Trendline Breakout Strategy With 200 EMA

This is a price action trading strategy that uses the 200 EMA and it is called the Trendline Breakout Strategy With 200 EMA.  It is similar to the 34 ema with trendline breakout forex trading strategy.

But in this case here, you are going to be using the 200 ema.

With this forex trading system, all you are doing is drawing trendlines above or below the 200 ema and trading the breakout of those trendlines…the 200 ema give you your trend direction.

Forex Currency Pairs to Trade: Preferably Any Currency Pairs with Low Spreads.

Forex Indicators Needed: Only the 200 ema

Timeframes: 1 hr and upwards preffered.

Lets get straight to the trading rules and trading setups now.

Buy Trading Setup And Rules

  1. Price must be travelling above the 200 ema, therefore an uptrend market is in progress.
  2. you draw a trendline and wait for its breakout. Click this link, if you want to know how to draw trendlines.
  3. A breakout happens when a candlestick breaks the trendline and close above it.  The candlestick that does that is called a breakout candlestick.
  4. Place a buy stop order 1-2 pips above the high of the breakout candlestick or if you want to take an aggressive entry, then buy immediately at market price as soon as the breakout candlestick closes.
  5. place your stop loss order 2-5 pips below the low of the breakout candlestick or if you think the stop loss is going to be too close, then consider placing your stop lost 1-2 pips under the nearest swing low.
  6. Your take profit levels should be at 2-3 times what you risked or aim for the previous swing high point.
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trendline breakout strategy with 200 ema

Sell Trading Setups And Rules

  1. Price must be travelling below the 200 ema, therefore a downtrend market is in progress.
  2. you draw a trendline and wait for its breakout.
  3. A breakout happens when a candlestick breaks the trendline and closes below it.  The candlestick that does that is called a breakout candlestick.
  4. Place a sell stop order 1-2 pips above the high of the breakout candlestick or if you want to be aggressive in your entry then place a market order as soon as the breakout candlestick closes.
  5. place your stop loss order 2-5 pips above the high of the breakout candlestick or if you think the stop loss is going to be too close, then consider placing your stop lost 1-2 pips above the nearest swing high.
  6. Your take profit levels should be at 2-3 times what you risked or aim for the previous swing low point.

trendline breakout strategy with 200 sell rules

Long Breakout Candlesticks

Are all trendline breakouts going to be valid sell or buy signals? The answer is no. One of the main problems of trading trendline breaouts this was is due to the fact that there will be times you will have long breakout candlesticks.

The main problems with long breakout candlesticks are these:

  1. they force you to take trades far away from the trendline, which means your buy stop or sell stop are taken far away from the trendline breakout.
  2. this means also that price has already moved a great deal so its momentum may be slowing down on the next few candlesticks that form after the breakout candlestick.
  3. you stop loss distance is increased because of the length of the breakout candlestick.
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Therefore when you see such long breakout candlesticks, you are better off not trading at all. If you go back to the two charts above, I’ve written some comments about the “not valid setups” and if you look closely, you will see that the breakout candlesticks are very long.

Once again, avoid trading those kinds of setups.

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