How to use 200EMA on 4-hour chart

Currency pairs are presented on price chart which is scaled into different time frames and which also range from monthly down to one minute.However, the lowest time frame on some platform is 5-minute.Knowledge and understanding have shown that moves on daily charts and higher ones are more reliable than the ones below.Most intra-day traders like me also consider actions on 4-hour charts to be reliable to a good extent too.Choice of time frame absolutely depends on the mentality and personality of the trader.Now we want to create a good use of 200 EMA on 4hour chart.

Let us start by using the EURUSD 4hour chart above as an example.It can be seen that the price moved up to the extent that the most recent candle closed bullish above the 200 EMA.It is good to anticipate more bullsih momentum.However, this kind of move would have been self-fulfilling on higher time frame like daily.So it is not safe enough to limit our analysis to 4-hour chart and remain blind to higher activities.We need to switch to daily chart and confirm if we have similar scenario there.

The daily chart of EURUSD above does not give a confirmed bullish signal with respect to any of the three moving averages on it, especially the 200 EMA.So there is no harmony between the 200 EMA on both daily and 4-hour charts.  On that note, we will have to ignore the bullish signal on the 4-hour chart for safety reasons.
 When price moves above the red 200 EMA moving average on 4hour chart.This is short term uptrend, our next effort is to check if we  have the price moving above the same EMA on daily.If so, then we can go ahead and buy the pair.This is the entry set-up rule.The next effort is to determine the exit prices.

 

One of the most difficult projections in forex trading is the determination of exit prices. It is easier to enter a trade than to exit it if reasonable profit is the goal. I usually set 50 pips stop loss and 50 pips trailing stop where the trailing stop is doing the work of take profit.The magnitude of stop loss and take profit depend again on trader`s tolerance level.Notwithstanding, the choice should be made in a way that demonstrate sensible trading.Money management and reward risk ratio must be applied strictly.
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