Forex Trading Strategy – Combining Exponential Moving Averages and Relative Strength Index

Forex Trading Strategy – combining Exponential Moving Averages and Relative Strength Index

You will learn about the following concepts

  • Indicators used with this strategy
  • Signals to be looking for
  • Entry point
  • Stop-loss
  • Profit target

Traders, who do not have too much time for examining price charts, may find this simple strategy attractive. The time frame we will be using is 1 day, with the following indicators – a 5-period Exponential Moving Average (EMA), a 12-period EMA and the Relative Strength Index (RSI) with its period set to 21. This approach can be used with any currency pair. Let us take AUD/USD.

A trader will usually look for a long entry, when the 5-period EMA (white on the chart below) crosses the 12-period EMA (green on the chart below) from below to the upside, while the RSI reading is above the 50.00 level.

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A trader will usually look for a short entry, when the 5-period EMA crosses the 12-period EMA from above to the downside, while the RSI reading is below the 50.00 level.

A trader will usually look to close his/her position, when the two exponential moving averages cross once again or the RSI moves again through the 50.00 level.

Below we provide an example of a long trade and a short trade, based on this strategy.

chart 2.0