Trading with two exponential EMA in the direction of the prevailing trend gives generates extreme profitable entry signals for the traders. Professional traders prefer EMA trading in the trending market to trade in the direction of the trend. In this system, two exponential moving averages are used to identify the potential entry points during the strong trending market.
The 100 and 200-day exponential moving average acts as excellent support and resistance zone in any currency pair. Professional traders take cautious entry with the help of these two EMA and carry their trade along the trend. Let’s see an example of EURUSD trade setup using 100 and 200 day EMA:
Figure: Breaching EMA trading strategy with minor retracement
The current price movement of EURUSD is in the uptrend since the price is trading over the 100 and 200-day exponential moving average. Professional traders observe the market see any potential breaching of the 100 days EMA. Once the price breaches the 100 days EMA and bounces back from the 200 days EMA with minor retracement, trader waits for a bullish close of the candle. If the bullish candle closes well above the 100 day EMA trader open their long position.
Professional trader set their stop loss just below the 200 days EMA when they enter long in the market. However, some traders prefer to trade the breaching EMA with tighter stop loss. In that case, they set their stop loss just below the low of the previous candle. Take profit area greatly varies in this trading strategy. Some traders set their take profit level in the key resistance level and book a decent amount of profit in their trading capital. But the best way to trade this strategy is to use the trailing stop loss feature by which traders can maximize the potential profit.