Trend Following Strategy for Long Term Investors.
With this particular tactic, the chief objective would be to exploit the most favorite expression in the gambling universe”the trend is your friend”. This swing trading system employs a mixture of moving averages, Trend Following Strategy 4 Hour Time Frame support and resistance, volatility and also several other tools to optimize profits by the trends from the foreign exchange market. At the very same time, the plan intends to maintain draw-downs and stoplosses .
Even though this tactic may perform on most of time frames, it’s ideal to be utilized on the 4 h interval, making it acceptable for swing traders.
If you decide to use a different interval as the bottom graph remember that you go one interval lesser for the signal graph (therefore if 1h is the base chart then the 30m interval may be the signal chart).
The main cornerstones of this strategy are as follows:
Inside this plan, the 4-h chart can be employed as the bottom chart (this is where we screen for potential places within the graph where trading signals may occur) and the 1h interval whilst the signal graph, or the transaction chart (where we execute orders according to the strategy).
We Will Need to have a Tendency.
This plan rests on tendency behaviour and without one that it can’t be properly used.
To ascertain whether there was a trend or not we’re likely to use a set of just two moving averages, out of which is really a 34 period and the other a 55 period MA. You will notice that these numbers are part of the Fibonacci chain.
We can evaluate whether a fad is worth trading or not by seeing the way the moving-averages relate with price activity.
Note: To this strategy feel free to try out various kinds of moving averages (such as simple, exponential and optional).
To Get the uptrend, the Fad Needs to meet the following Requirements:
Price action is above the two Moving-averages.
Price stays above the Moving-averages.
The 3 4 MA is above the 55 MA and Remains above the 55 MA.
The MAs are sloping up for the Majority of the Period since they follow the Fad.
For a downtrend, the Exact Same applies just in the opposite Way:
Cost action is under the 2 moving averages.
Price Remains under the moving averages.
The 34 MA is under the 55 MA and Remains Beneath the 55 MA.
The MAs are sloping downwards for All the time as they trail Contrary to the trend.
An Instance of a downtrend with the moving averages is Displayed on the next chart.
As could be seen using this EUR/AUD chart, the cost tends to bounce off the two moving averages. Ostensibly, the moving averages are a support zone during up trends and a resistance zone at down trends.
It is around and interior this moving ordinary zone that the very best trading opportunities for this particular trend trading strategy should be found.
We are trying to profit from the swings in the direction of the trend. For this reason, you want to combine the fad onto the retracements.
Entry rules Trend Following Strategy:
There Has to Be a Fad on the 4 H with the moving averages lined as described earlier.
There needs to be a retracement trend line (counter the management of the trend) that’s been touched a minimum of three times (as exhibited at the example below).
This will ordinarily be a continuation graph pattern at the same time (on the 4-h chart) just like a triangle or a station.About the 1h graph, await a break out with a close of the retracement trend line at the direction of the greater tendency (on the 4-h time frame).
Once the retracement reaches the area around and between the moving averages we switch to the 1h time to start looking for entrances.
We need to wait for a retracement to start and for the price to move involving the two moving averages.Input on the breakout once price shuts past the trend line (on 1h chart).
An example of how an entry for this particular strategy would look like is displayed below.
For Trend Following Strategy, we would place the stop at 30% of the daily average true range under the entrance point. On this day, the ATR had been 72 pips to the AUDUSD set up, so 30% of 72 will be 21.6 so we’d put the very first stop with this commerce at 22 pips + the disperse.
Stop loss rules:
Initial stop loss placement:
Put the ATR (average true range) indicator on the D1 chart.
Establish the stop loss to 30 percent of the everyday ATR behind your entrance level (that will be the break of the trend line).
Insert the disperse into the stop loss (for more exotic money pairs the disperse may often be 15 or even more volatility which can make a huge difference in the 1-hour timeframe in terms of if your stop loss is going to likely be triggered).
Just take the EUR/USD set that has approximately 100 pips range. In the event that you entered an exchange on EUR/USD using this particular specific strategy then your stop loss will be 30 percent of 100 that equals 30 pips in addition to the spread, that is approximately 1 – two pips to get EUR/USD. Therefore the stop-loss, in this circumstance, will be 3 2 pips.
When you’ve entered the transaction that you want to take care of that stop-loss and track it inorder to be in a position to get the most benefit out of the tendency. This is the way this approach works:
A counter-trend retracement trend line would be. Once this happens there was a greater probability that the new retracement or a reversal has begun. Ergo it’s better to depart the trade and wait for a new prospect.
If at any time during the trade a counter-trend retracement trend line starts to make on the 1-hour chart then depart the trade.
When the purchase price has transferred 30% of the everyday ATR in profit, move the stop loss to break.
As this is a Trend Following Strategy we will make use of a trailing stop for exiting the commerce. This allows us to profit to a larger part of the move. here is the live trend direction on investing.com
There are some specific rules for This Particular stop Arrangement:
- Afford the candle of this highest high.
- Put the stop a few pips lower than the lower of the fifth candle.
- Locate the non with this candle. Note highs that are lower count. Lows which are the same as or more compared to the preceding temptations should be omitted.
- Count backward for 5 previous lows from the low of the candle.
- Since the purchase price makes new higher highs, get the newest highest high.
- Note highs that are higher count. Highs that will be the same as or less compared to the previous highs should be omitted.
- Since the price makes new lower lows, find the Trend Following Strategy most recent lowest non.Take the candle of the lowest low.
- Put the stop a couple pips higher compared to the top of the fifth candle.
- Find the high with the particular candle.
- Count backward for 5 previous highs against the top of that candle.
Here’s the Trend Following Strategy way this trailing stop looks on a chart.
The blue arrows are the starting point of the count and also the point could be the stop loss positioning for this time in time. The numbers are still an example of just how to count the candles to determine the stop. You may observe here how lower highs are left until the next higher high backward.
Whilst the downtrend evolves with every new lower , the counting to the trailing stop should re-done back and the stop proceeded lower.
EUR/USD 1h chart. Notice the way the manual tracking stop enabled the trader to capture almost the full move. Trades are exited only when the price moves above the Blue line that happened on this particular chart at the initial situation on the other hand.
Finally, go on and exercise this tactic on the demo account first so you can grasp every thing prior to going. If you will find it helpful some back testing on price data is a fantastic method to learn and learn that this Trend Following Strategy.