## The Setup: Channel Breakout from a 200-EMA Bounce

This is an example of our channel that has broken out on the top side bouncing off of the 200-EMA.

So, how do we trade this.

• Plot the trendlines forming the price structure – Channel
• Identify the location of price in relation to the 200-EMA
• If price is above the 200-EMA, anticipate a breakout from resistance as soon as price starts touching the 200-EMA
• As soon as price breaks out and closes above the resistance, enter the trade with a market order
Stop Loss: Stop loss should be a few pips below the entry candle.
Exit: Trail the stop loss on fractals until stopped out on profit.
Notice how price stops dead in its tracks at the area near the 200-EMA. It then started to contract as it gets squeezed in between the 200-EMA and the resistance. Then, right after the contraction was the violent expansion to the upside. Another thing to take note of also, if you are a price action trader. Price also did retest the broken resistance after the breakout, although retests don’t always happen.
Also, if you would notice, there were no fractals formed due to the rapid expansion of price going to the upside. What we could do however, is trail the stop loss a few pips below a couple of candles prior to our current candle, until we find a fractal.
Now let’s go to our triangle setup and see how we could have a higher probability in guessing the direction of the breakout.

### Sell Setup:

• Plot the trendlines forming the price structure – Triangle
• Identify the location of price in relation to the 200-EMA
• If price is below the 200-EMA, anticipate a breakout from support as soon as price starts touching the 200-EMA
• As soon as price breaks out and closes below the support, enter the trade with a market order
Stop Loss: Stop loss should be a few pips above the entry candle.
Exit: Trail the stop loss on fractals until stopped out on profit.
Notice how the highs within the triangle are actually just peeks above the 200-EMA and couldn’t even strongly close above it. This is already an indication that price is respecting the 200-EMA, and that chances are the triangle is going to breakout on the downside. Having an idea of where a triangle pattern will breakout is already a massive edge. Now, all we have to do is wait for a strong bounce off the 200-EMA that would break the support line. And it did. Although, the close wasn’t too far below from the support line. In this case, it might be better to set a pending Sell Stop Entry Order below the long breakout candle. But for the sake of this setup, we entered the market on the close of the next candle. Also, if you’d continue the chart further right, it would have gained a few more pips, however, if we would trail our stop loss aggressively, we would have been stopped out at the level indicated as our exit above.

## Conclusion

The 200-EMA is a great tool even for price action and breakout traders. It not only gives us an idea with regards to the direction of price, but it also helps traders make sense of the chart. By putting in the 200-EMA, a channel or a triangle or any other pattern for that matter wouldn’t be just a random price structure on a chart, but a part of the story of a big picture trend.
This strategy does work. However, looking for trades using this strategy alone might bore some traders, since trades using this strategy don’t come too often. This is because some smaller structures breakout to the direction indicated by the 200-EMA even without touching it. This is because other shorter EMAs such as the 50 and 100 EMA also act as a dynamic support. Think of the 200-EMA as the last line of defense. As the last line of defense, price often don’t get to come near it. Also, in some cases, the trend has already weakened too much that when it crosses the 200-EMA, it actually is a long-term reversal of a trend.
Study the 200-EMA as a big picture trend indicator. This will be helpful whether you’re a price action trader, or even an indicator based algorithmic trader. As always, happy trading.

### How to install Diagonal Breakout Bounce Forex Trading Strategy?

• Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
• Copy tpl file (Template) to your Metatrader Directory / templates /
• Start or restart your Metatrader Client
• Select Chart and Timeframe where you want to test your forex system
• Right click on your trading chart and hover on “Template”
• Move right to select Diagonal Breakout Bounce Forex Trading Strategy
• You will see Diagonal Breakout Bounce Forex Trading Strategy is available on your Chart