You can substtitue 50 exponential moving average with other ema’s like 10, 20, 30. The trading rules will be the same regardless.
Here are the buying rules…
- Wait for price to break the 50ema to the upside
- The candlestick that breaks the 50ema either upwards and closes above it is your entry candlestick.
- Place your buy stop order 2-5 pips above the high of this candlestick. You are anticipating a breakout of this candlestick which will trigger your buy stop order
- Place you stop loss 5-10 pips below the low of the entry candlestick.
- Exit when an opposite signal is given or lock in profits by using trailing stop loss and placing it a few pips behind lower swing highs that form as the price continues to move downward until you get stopped out with a profit.
- Wait for price to break the 50ema to the downside.
- The candlestick that breaks the 50ema either downwards and closes below it is your entry candlestick.
- Place your sell stop order 2-5 pips below the low of this candlestick. You are anticipating a breakout of this candlestick which will trigger your sell stop order
- Place you stop loss 5-10 pips above the high of the entry candlestick.
- Exit when an opposite signal is given or lock in profits by using trailing stop loss and placing it a few pips behind higher swing lows that form as the price continues to move until until you get stopped out with a profit.
TIPS ON MANAGING YOUR TRADING & EXITING YOUR TRADE
The following are just suggestions, you should figure out what works best for you and use it:
- move stop loss to breakeven when price moves by the amount your risked. But in my experience with this is that you tend to get easily stopped out with a loss.
- The best option is to wait until price forms those peaks and valleys of price swings and use these price swings to move stop loss to lock in more profits as price moves favourably. See chart below for more clarification
ADVANTAGES OF THE 50EMA FOREX TRADING STRATEGY
- This is a very simple forex trading strategy that is easy to understand and implement
- the 50 ema trading strategy in a good trending forex market has the potential to give you hundreds of pips easily especially if taken in larger timeframes like the 1hr & 4hr charts.
DISADVANTAGES OF THE 50 EMA FOREX TRADING STRATEGY
All forex trading strategies have their shortfalls and the 50 ema forex stragy is no exception. Here are a few I can think off:
- Moving Averages forex indicators are lagging indicators which essentially means that price moves ahead and the ema indicator responds to this price moves late.
- The 50 ema forex trading strategy will not work so well in a non trending market. You will have too many false signals.
TRADING RISK ALLOCATION PER TRADE
Forget about how much money you think you can make with each trade you place. That’s more like counting your eggs before they hatch.
Your focus should be on “how much money your are going to lose if that trade goes against you”.
The size of you trade (lots/contracts) should reflect what risk you are willing take on your trading account.
It is recommended you stick to around 1-2% risk per trade. Remember, it is better to trade with small risk and gradually grow your forex trading account steadily over time than to take big risks trying to increase your account fast…and with such practice, all it would take is one or 2 trades to annihilate your trading account.
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