Sunday, December 21, 2014

200 Day Moving Average Trading System

May 21, 2010 by  
Filed under Fx Tutorial


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 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

Trending & Quiet

Trending & 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.

200EMA Resistance

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.

Price Crossover

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 strategy, please read the below

http://www.forexindicator.org/how-to-formulate-your-own-forex-strategy.html

Comments

43 Responses to “200 Day Moving Average Trading System”
  1. Ahmadou Diatta says:

    The 200 moving average trading strategy seems more effective for me on a 1 hour chart. However, I have one concern :let’s say for instance if the currency is trading below the 200 ema, should we wait for the macd to go below the 0 line to short the currency pair or either way does not matter, whether it’s above or below the zero line. The reason why I am asking is because I was told that macd is more effective when it’s above the zero line (when longing a currency pair) and more effective when it’s below the zero line (when snorting a currency pair).

  2. Hazem says:

    Hi kelvin,
    again and again many thanks for your work.
    i have read many articles that says most of the indicators be more accurate and useful in long time frames like h4 and d1, i saw in one of your reply that you use m15 and m5 ,whats your opinion in these articles ,

    • Kelvin says:

      Hi Hazem

      When you use indicators on the higher time frame, there are lesser noise due to the slower moving action on those time frames which is why most people says that most indicators are more accurate on the higher time frame. For me, the 15 minutes is still a very good time frame for indicators but 5 minutes will produce a lot of false signal due to the fast movement on that particular time frame.

  3. Mohammed Dawoodi says:

    Hi kelvin.

    first of all i would like to say thank you very much to share such a useful information,im trading since 3 years and i know alot of trading companies here in dubai,but there is no one to share this much of information for free
    and here you are you giving all of them for free its like online classes,honestly i paid to learn and it is almost the same information,hope the others to appreciate, thanks again

  4. SIDDIQUE says:

    PLEASE TELL ME ON WHAT TIME FRAME ,M5,M15,M30,H1OR H4.

    • Kelvin says:

      Hi Siddique

      The strategy works on all time frame, the time frame to use depends on the type of trader you are.

      • SIDDIQUE says:

        What do u mean by type of (trader you are).Some time I feel that now candle is touching 200EMA and will go away but it crosses and goes in one direction,no reversal appears.Plz. advise.

        • Kelvin says:

          Hi Siddique

          What I mean is whether you are a scalper who enter and exit your position within minutes or day trader who enter and exit your position within the same day or position trader who enter and exit your position in weeks.

          As for your question, it does happen as there is nothing 100% in trading. There are time where thing do not go our way and you have to accept it.

  5. Darren says:

    Hey, Kevin

    The 200 day moving average was used because there used to be aprox 200 trading days in a year.

    The number has now increased to something like 255 days a year. Have you done any research to see if using aprox 255 day moving average would work better to take into account seasonality.

    • Kelvin says:

      Hi Darren

      I did not do any research on the 255 days moving average. It will be great if you have any information to share with us here.

  6. Darren says:

    Hey, Diana

    If your sitting on eggshells your most likely trading to big. I save 50% of the money I make & only 1% of my net worth I put on the table.

    Almost everyone starts out focusing on a method & fails to understand money manegement.

    You can have a trading method that give you an edge but can lose money if you cant trade as if you dont care or understand beta slippage.

  7. Diana says:

    HI, I liked your blog. I am a new trader losing money. I would like some help. I would like to have a simple system to use consistently, something that works for you. I read that you use the 15 min 200 EMA to see the trend and then the 5 min chart to enter a trade.
    Right now the EUR/USD is moving up. I have a long trade which I took at 1.3800, and I am wondering how high will it go. I have been sitting on egg shells with all the drops in the last 24 hours. Action Forex recommend to sell the EUR/USD at 1.3650, which looks like to me the 15 min 200 EMA, What do you think about that?
    Diana

  8. Rusty says:

    Hi Kelvin,

    First of all thank you for sharing your precious knowledge with us. I have a question. I changed moving average to “exponential”, then period to “200″. But there’s also an option to apply EMA to “close”, “open”, “high”, “low”, median price, typical price etc. Which one should I choose?

    Thank you

    • Kelvin says:

      Hi Rusty

      As for how to change the moving average to exponential, it depends on your platform. There are some platform that gives you the option of SMA or EMA and there are some that just gives you moving average and you can go to the setting to change it to either exponential, weighted or simple.
      As for the price, I use the default close setting.

  9. JPNWV says:

    What time frame do you use?

  10. Zia says:

    Where can i get this indicator??

    • Kelvin says:

      Hi Zia

      It is available on your trading platform. You just have to plot the moving average and then select the period to be 200.

  11. gbenga says:

    wait for the price to violate 200 ema, then retrace back to 200 ema, look for opportunity to short or long

  12. $ander says:

    Hi Kelvin,

    I “found” your website only yesterday but I just wanted to let you know that the 200EMA is definately working for me, entering today EUR/DOLLAR @ 1.4205 (M15). Perfect buy-signal! Thank you very much for your insight and advice.

  13. Aji says:

    I can’t find the 200 EMA on meta 4 indicator list. Is it a signal I have to buy?

    • Kelvin says:

      Hi Aji

      You do not need to buy the 200 EMA, you just need to go to the moving average indicator and then select 200 period and select exponential.

      • bakash says:

        i have got moving indicator on my list but i cant find 200 period and exponential plz help me find this

        • Kelvin says:

          Hi Bakash

          You should look for Moving Average and then change the period to 200.

          • bakash says:

            hey thanks kelvin , i got it ,

            i have one more question ,
            is this analysing this indicator would be enough for trading , or need to compare with other indicators , if yes plz help me abt those indicators i have just started trading so dont know much abt indicators

          • Kelvin says:

            Hi Bakash

            This indicator is just telling you the current trend of the market as well as showing you where is the resistance or support. In order to trade, you may need other indicators like the forex MACD indicator or forex Stochastic indicator for entry.

  14. Pips Taker says:

    Price sometimes do whipsaw around the 200 EMA in the 5 min chart causing much losses. When I buy, price closed below 200 EMA. I exited with a loss and entered a sell. Price closed above 200 EMA and I had to exit with another loss and bought again. Price this time went up a few pips and then closed below 200 EMA. I exited again with another loss and this time I’m fearful of selling. Is there any way to prevent such losses? Should I continue to stick to the plan and sell hoping that price will move down and recoup all my losses?

    • Kelvin says:

      Hi Pips Taker

      I personally dont trade with the 5 minutes as I myself have this problem as what you have stated above. The reason of this problem is that the 5 minutes chart has too much noise due to the numerous candlestick formed. Therefore I suggest that you trade off the 15 min instead.

  15. iman says:

    Kelvin
    Hope you have a good time
    As you said to share our experience about EMA200
    I would like to draw your attention for this MA from 28 till 30 March for EURUSD
    in H1.
    As you can see in this time frame it is really useless tool for trading
    Unfortunaetlly i can’t upload the Pic.
    Best Wishes
    Iman

    • Kelvin says:

      Hi Iman

      The 200 EMA is a very reliable tool but in trading there is no indicator that work 100% of the time. You can have all the indicator aligned telling you to enter a trade but you can get stopped out and that is trading. What I meant by reliable is that the indicator works most of the time but not everytime.

      You have raised a very good question above and thank you for your input. Do keep in touch.

  16. jolly says:

    your trading plan is a very good one but want to ask wether the entry will be through pending order or instant execution.and what time frame do use particulary.thanks

  17. Dr Julius Ssemakula says:

    Hullo Kelvin, the 200EMA is more responsive for me. i have a question though, does it mean that i can leave my position open for as long as possible(even days so long as i adjust my S/L) so long as the price is above or below the 200EMA and has not crossed it to signify exit.
    Thanks

    • Kelvin says:

      Hi Dr Julius

      If you are leaving your position open, you need to slowly shift your stop loss to breakeven and eventually lock in some profit just in case there is some news event causing the market to spike.

  18. dan says:

    hi.i like sma 200 because is less senzitive and help you to identify strong rezistance.many house brokers use sma 200….what is your opinion sma 200 or ema 200?

  19. dan says:

    what about sma 200?it s more less senzitive and it s very good for suport and rezitence.

    • Kelvin says:

      Hi Dan

      It is also okay to use the 200 sma instead of the ema. It is just that I find the ema more responsive to or price movement.

      Maybe u can try them out and let us know the result so that everyone here can learn from it.

  20. adam says:

    I agree, the 200EMA is a fantastic moving average, you can catch large moves trading 200 ema brakes on any time frame even 5M.

  21. Pradeep says:

    Hi,
    Thank you for your idea sharing with us. I have one doubt about which time frame is most suitable for 200 day moving average.

    • Kelvin says:

      Hi Pradeep

      The 200 days EMA is suitable for all time frames. You can try plotting this up on all time frames and see the effect of it. I strongly suggest the use of this moving average as it is a very reliable support and resistance.

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!