The trendline trading with 34 ema forex trading strategy is a trading strategy that combines the breakout of a trendline with 34 EMA to look for trade setups.
Currency Pairs: Any
Timeframes: 5 minutes and Above
Forex Indicators: only 34 ema or you can any of the following and substitute for 34 ema: 7 ema, 14 ema, 21 ema or 50 ema or even 10 ema.
Background
The 34 EMA is used for trend confirmation.
- If price is travelling above the 34 ema, you only are looking for buy trade setups.
- If price is travelling below the 34 ema, you are only looking for sell trade setups.
So where does the trendline come into play?
- Well, first you have to know how to draw a trendline.
- But with this trendline, you want to pick the two nearest swing high points or peaks for drawing a downward trendlined and the two nearest swing lows to draw the upward trendline.
- When price breaks a trendline, it also indicates that a trend is changing.
Buy Trading Rules
1) draw the downward trendline based on the two nearest swing high peaks and wait for a breakout of the trendline.
(2) if there is a breakout then, check to see if price is above the 34 ema line.
(3)next thing you do to sit and wait and watch the highs of the candlesticks that form as this is where you need to identify your signal candlestick
(4) This is important: The signal candlestick is the candlestick with a high that is lower than the previous candlestick’s high. If that single candlestick’s high is broken, then buy immediately at market, or you can place a sell stop order just a few pips (2-3 pips) above the high of that signal candlestick so if the price breaks its high, your order will be executed.
(5) if your buy stop order is not activated and the candlesticks continue to make lower highs, move your buy stop order to each lower high candlestick that forms until price moves up and activates the buy stop order. Make sure that when candlestick are making lower highs, they do not close below the 34 ema line.
(6) I’ve given 2 stop loss placement options on the chart below. Place your stop loss just below the low of the candlestick that activates your order or if there a nearest support level, you can use that as well.
(7) For take profit, use risk:reward of 1:3 or use previous swing high points /peaks and use that as profit target
Sell Trading Rules
Just the exact opposite of Buy Rules:
(1) draw your upward trendline based on two nearest swing low points and wait for a trendline breakout to happen
(2) price must then fall below the 34ema
(3)after the downward trendline breakout, watch the lows of the candlesticks that form.
(4) This is important:The signal candlestick is the candlestick with a low that is higher than the previous candlestick’s low, if that single candlestick’s low is broken, then sell immediately at market, or you can place a buy stop order just a few pips (2-3 pips) below the low of that signal candlestick so if the price breaks its low, your order will be activated.
(5) if your sell stop order is not activated when candlesticks continue to make higher lows, continue to move your sell stop order to each higher low candlestick that forms until price moves down and activates your sell stop order. Make sure that when candlesticks are making higher lows, they do not close above the 34 ema.
(6) Place your stop loss just above the high of the candlestick that activates your order.
(7) For take profit target, use risk:reward of 1:3 or use previous swing lows for take profit target.
Disadvantages of the Trendline Trading With 34 EMA Forex Strategy
- there is always that potential of getting too many false signals in non-trending or sideways market.
- sometimes the market will make a very big move and you will will find that there won’ be any nearest swing high or low points to draw your trendlines
Advantages of the Trendline Trading With 34 EMA Forex Strategy
- when price breaks a trendline, it tends to be a pretty good signal that a new trend is starting. Added onto that, you have the 34 ema also indicating that trend change.
- in good strong trending markets, this forex trading system has the potential to perform extremely well.
- the use of forex reversal candlestick patterns can be applied to enhance your trade entry on this system as well.
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