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Is The Trend Really Your Friend?

  • Post #41
  • Quote
  • Edited 11:48pm Feb 2, 2007 11:13pm | Edited 11:48pm
Quoting ForexASDF
I've always heard that "The trend is your friend", but my testing says that trading against the trend is more profitable that trading with the trend.

What general style of trading do you believe is most profitable? Comments are appreciated.
I am not a mathmatician but I am a logical realist.
While there are no guarantees in trading, this whole trading concept is about increasing your odds at picking the probable direction.
Fact: If there is one buyer and one seller, there is no trend-Flat.
Fact: If there are two buyers and one seller, the momentum is slightly trending
up, and the odds are now somewhat in your favor if you
"go with the flow" (trend)
Fact: Mathmatically the odds are favoring you 2 to 1 if you get in this move.
The stronger the trend,( buyers vs. sellers) the better the odds
are in your favor.
Fact: If the trend is up and you take a sell...you lose! (unless the trend
changes in which case you should just wait for the change, then get
in.)
Fact: These are just my simple opinions that mathmatically put the odds in
in my favor.
Stan
P.S. Fact: The above is true also for down trends
Quoting luqmanz
Great advice. Thanks Jacko.

Another tips I wanna share. To avoid overtrading (itching to trade), enter a position using daily charts, and use trailing stops. As long as the position is in the market, your brain will automatically stop "itching to trade" because you already have a position there. Lol. It works for me. Less trade made, less risk of losing and you ride on your winners.
Hi luqmanz,

A good idea.

And trailing stops are the way to go.

The only other thing I would add would be to consider the anti-hedging strategy outlined in a thread above..for those times when you make a mistake in your entry direction.
trend is not your friend, forex is not your friend, and brokers aren't your friends either.

forex is a wild and crazy place.
Working towards CME membership
Quoting hilmy83
trend is not your friend, forex is not your friend, and brokers aren't your friends either.

forex is a wild and crazy place.
If the trend is not your friend...then tell me what is.

If forex is not your friend....then tell me a better business.

If brokers are not your friends... then deal with an automated broker.

forex is a wild and crazy place...not really, its a place for disciplined trading. Wild punters (and their accounts) disappear quickly


.
In the bottom line analysis, the trend is neither friendly nor unfriendly and what the trend is exactly, depends on how you define it, or rather how your method defines it. Same thing with regards to friendliness applies to brokers, though some brokers make it more difficult to profit than others - particularly the ones with a dealing desk that compete with the trader. Forex is neither friendly nor unfriendly but serves a viable economic purpose to allow entities to hedge or transfer foreign exchange risk to those parties who are willing to accept that risk.

The point is that the markets exists and they have certain rules and ways of moving that can be characterized and the inefficiencies can be identified and exploited. Some people call the way a market moves from level to level "the trend". Whatever you call it, those traders who develop an understanding of how the market moves and then devise strategies to exploit their target market's natural movement and inefficiencies have a good chance of creating friendly increases to their accounts through the implementation of their strategies. Under those circumstances I would say, yes the trend is your friend. A long explantion but sometimes these market sayings are overly simple-minded.
Quoting jacko
If the trend is not your friend...then tell me what is.

If forex is not your friend....then tell me a better business.

If brokers are not your friends... then deal with an automated broker.

forex is a wild and crazy place...not really, its a place for disciplined trading. Wild punters (and their accounts) disappear quickly


.
Hey Jacko,

Thanks for this.
Things are going well. Currently have one anti-hedge in place and have been trading in the positive. Have made very good profit in the last 20 days. I am on my way! I will be doubling my trade size from this week.
  • Post #47
  • Quote
  • Edited 10:42pm Feb 7, 2007 10:10pm | Edited 10:42pm
Quoting jacko
Hi Bob,

How do you know what the trend is?

Determine and set your favoured time frame.

1. If the graph on the chart starts in the bottom left hand corner and ends in the top right hand corner, the market is going UP.

2. If the graph on the chart starts in the top left hand corner and ends in the bottom right hand corner, the market is going DOWN.

3. If you are still confused, print it off and show it to a 5 year old...they will get it right EVERY time...LOL

The trend is the BEST friend you will ever have in the Forex market.


Also, KISS it (Keep It Short and Simple)

I only use:
1. minimal numbers of trend lines (2 at the most)
2. the ONLY Fibonacci number I use is the 50% number....
3. Apart from that, I think the round numbers (1.2900...1.3000...etc) are valuable.
That's the limit of my T/A...

Note: I do NOT use any moving averages (or any other of the fancy measures). They are historical numbers!!!

The reasons that I use only trend lines, the 50% Fib number, and round numbers is that the big players ALL use them. The more complex you make your trading parameters, the less number of people will be using them.

Forex like any financial market is a zero sum game. That means that for every transaction one enters there is someone else represents the other side of hte transaction. I am sure that majority of the people have learned to trade in the direction of the trend. So who is supplying them those pips they are getting by being so wisely in the trend.

One great ineteresting remark I read in Tom Demark book:

"Early on, I realized that by researching and creating trend-following techniques, like so many other analysts, I merely invited unwanted trading risks such as slippage, price vacums, gaps, and unfilled orders. I noted that few, if any, stock specialists or future or option market makers ever file for bancruptcy. What distinguishes their trading styles from those of the typical trader? I concluded that they opperrate against the prevailing trend -in other words, they provide supply as price moves up and they furnish demand as price moves down...."

Sure, Tom is not speaking about Forex, but the tendency of market makers, borkers, "Smart Money" are different than just following trend. Needless to say, that to play their game is not as easy as getting good timing and joining trend. Many people confuse this concept by timing tops and bottoms reversals and that is not what Tom described here and since he is one of the most respectable TA we cannot ignore his point of view. Following the trend is not necessary following big boys as we perceive it.

BTW Not that it has any major significanc but 50% is not a Fib number, it is just a number which fits very well into any trading method.
Quoting Lenny
Forex like any financial market is a zero sum game. That means that for every transaction one enters there is someone else represents the other side of hte transaction. I am sure that majority of the people have learned to trade in the direction of the trend. So who is supplying them those pips they are getting by being so wisely in the trend.

One great ineteresting remark I read in Tom Demark book:

"Early on, I realized that by researching and creating trend-following techniques, like so many other analysts, I merely invited unwanted trading risks such as slippage, price vacums, gaps, and unfilled orders. I noted that few, if any, stock specialists or future or option market makers ever file for bancruptcy. What distinguishes their trading styles from those of the typical trader? I concluded that they opperrate against the prevailing trend -in other words, they provide supply as price moves up and they furnish demand as price moves down...."

Sure, Tom is not speaking about Forex, but the tendency of market makers, borkers, "Smart Money" are different than just following trend.

Needless to say, that to play their game is not as easy as getting good timing and joining trend. Many people confuse this concept by timing tops and bottoms reversals and that is not what Tom described here and since he is one of the most respectable TA we cannot ignore his point of view. Following the trend is not necessary following big boys as we perceive it.

BTW Not that it has any major significanc but 50% is not a Fib number, it is just a number which fits very well into any trading method.
Hi Lenny,

I have just read all your posts. You sound an intelligent trader. I agree with what you have said above.

1. the tendency of market makers, borkers, "Smart Money" are different than just following trend. They actually determine the trend by sheer weight of money. Smart Money is the Central Banks. (Central Banks turn the long term currency markets to accomodate the relevant government's trade requirements). Then following them are the huge hedge funds.

2. Needless to say, that to play their game is not as easy as getting good timing and joining trend. As tiny fish in the market, joining the trend is the only easy and safe strategy for us. The advantage that we retail traders have is that the Central Banks are like ocean liners...it takes a long time to change direction. (the current bull market in the GBP started in June 2001)

3. Not that it has any major significance but 50% is not a Fib number, it is just a number which fits very well into any trading method
The reasons that I use the 50% number is that the big players ALL use them. It is good for medium term targetting but is playing less and less a role in my trading as I prefer to just use a trailing stop and let the market close out my position.

.
I really like your points Jacko. That's good stuff.

But I have a couple of questions:

What sort of stop losses would one use when entering a trend following trade on a dip?
How do you determine a trend has reversed? Or has subsided into a side ranging trend where the market is deciding which way to go next?

Thanks for all these tips.
see below...answers in red



Quoting moneybags
I really like your points Jacko. That's good stuff.

But I have a couple of questions:

What sort of stop losses would one use when entering a trend following trade on a dip? What do you mean by "a trend following trade on a dip?"

How do you determine a trend has reversed? Trend line break

Or has subsided into a side ranging trend where the market is deciding which way to go next? You won't know UNTIL the market has given you a clear dirction...until then you either ...stay in the trade...get stopped out... or, (rarely), take whatever profit is there and take a break from trading.

Thanks for all these tips.
Hope that helps.
Jacko,
When you draw trend lines, what hour chart do you use and why?
Quoting sarama001
Jacko,
When you draw trend lines, what hour chart do you use and why?
I start with weekly, then move closer in using daily, 4 hour and 1 hour to help me make a decision. But I am also starting to notice that it doesn't really matter anymore where I buy or sell.
The anti-hedging strategy is FAR, FAR, FAR more important.

The anti-hedging strategy ensures that,... if you make a trade in the wrong direction,.... you can get your losses back ...AND you are in the direction of the trend.
Stick a trailing stop loss on it and you are guaranteed a profit.

So...
1. If your trade is a winner, you stick a trailing stop loss on it and let it run.

2. If your trade is a loser, employ the anti-hedging strategy, and at some time, you can get your losses back ...AND you are in the direction of the trend. Stick a trailing stop loss on it and let it run.

K.I.S.S. (keep it short and simple)

.
Quote
see below...answers in red
I really like your points Jacko. That's good stuff.

But I have a couple of questions:

What sort of stop losses would one use when entering a trend following trade on a dip? What do you mean by "a trend following trade on a dip?"

How do you determine a trend has reversed? Trend line break

Or has subsided into a side ranging trend where the market is deciding which way to go next? You won't know UNTIL the market has given you a clear dirction...until then you either ...stay in the trade...get stopped out... or, (rarely), take whatever profit is there and take a break from trading.

Thanks for all these tips.




Hope that helps.

Hi Jacko,

What I mean is, when you enter a trade based on the trend (after price has dipped to the trendline during an uptrend for example) what sort of stop loss would you use? Would you just set it based on a break down through the trendline?

And for you, what constitutes a trendline break? Price going x number of pips past the trendline? Or would you wait for a bar to close below the trendline or something of that sort?

Thanks again!
  • Post #54
  • Quote
  • Edited 11:22pm Feb 8, 2007 10:41pm | Edited 11:22pm
Quoting jacko
Hi Lenny,

I have just read all your posts. You sound an intelligent trader. I agree with what you have said above.


Hi Jacko,

I have read many of your posts too and flattered by your remarks.

Quoting jacko
1. the tendency of market makers, borkers, "Smart Money" are different than just following trend. They actually determine the trend by sheer weight of money. Smart Money is the Central Banks. (Central Banks turn the long term currency markets to accomodate the relevant government's trade requirements). Then following them are the huge hedge funds.
Yes, and then following them are syndicate traders, market makers, brokers. Almost as we perceive trends at a different time frames. The bigger the time frame, bigger the player who determines the trend.

Quoting jacko
2. Needless to say, that to play their game is not as easy as getting good timing and joining trend. As tiny fish in the market, joining the trend is the only easy and safe strategy for us. The advantage that we retail traders have is that the Central Banks are like ocean liners...it takes a long time to change direction. (the current bull market in the GBP started in June 2001)
Yes, we are small fishes in a big pond. My previous point was that following the trend and following big money or big boys are not always the same thing and in many instances are opposite to each other as we agreed. We are as small players can participate in the game by getting in the trades in the direction of the trend that can vary depending on the degrees of correction/counter trend or identify the optimum time/price of entry and therefore minimizing risk exposure but increasing total loosing percentage.

We have been in quite uptrend. Even we look at daily charts, the uptrend line has held since October 2005. But I am sure not many of us could handle 500 pips correction that at that time became counter trend that we also traded that eventually adopted the form of temporary smaller time frame trend.

The bigger the time frame the steadier the direction and harder to break those trendlines but not many people can stay in the trend without taking the profit, stopped out by trailing stops and not trading the corrections especially if those corrections lasts for several weeks or months.

I know you are a longer term trader but I doubt you could have stayed long since June 2001 and trading on the dips would have required seeveral weeks of vacations. And bigger players have similar difficulties. George Soros lost half a billion in one of his currency trades last year, not sure which trend he followed or perhaps he decided to trade without SLs

Quoting jacko
3. Not that it has any major significance but 50% is not a Fib number, it is just a number which fits very well into any trading method
The reasons that I use the 50% number is that the big players ALL use them. It is good for medium term targetting but is playing less and less a role in my trading as I prefer to just use a trailing stop and let the market close out my position.
I have experimented with trailing stops but never really got comfortable with them. Can you please explain how you use them?

Also in your trading do you consider risk reward ratios? Yes, it is a tricky subject, but we all have to choose the trades.
Quoting newbietrader101
Hey Jacko,

Thanks for this.
Things are going well. Currently have one anti-hedge in place and have been trading in the positive. Have made very good profit in the last 20 days. I am on my way! I will be doubling my trade size from this week.

Good work!!! I will email you and you can show me your trades.


.
Quoting Lenny

Hi Jacko,

I have read many of your posts too and flattered by your remarks.
.........

I have experimented with trailing stops but never really got comfortable with them. Can you please explain how you use them?

Also in your trading do you consider risk reward ratios? Yes, it is a tricky subject, but we all have to choose the trades.
Hi Lenny,

1. Trailing stops...I can only recommend them fully. I use 50 pips from the lowest low (or highest high) for Euro and 75 pips for GBP. (I am now starting to get interested in GBP). As the trend gets closer to "significant" numbers, I reduce the trailing stops

2. Risk/reward ratios are useless (in my opinion). No-one can predict direction of a trade....so how can you predict your reward?
I admit that if you use stop-losses you know your risk, but how do you "know" what the return will be? And why put a limit on your profit by aiming for a set amount of pips anyway?
My opinion only...the "reward" targets are for those delusional enough to think that the market will do what they (the trader) want it to do.

I hope that answers your main questions.

.
Quoting ForexASDF
I've always heard that "The trend is your friend", but my testing says that trading against the trend is more profitable that trading with the trend.

What general style of trading do you believe is most profitable? Comments are appreciated.

I believe it can't be said that counter-trend trades are more profitable.

Its better to say that Counter-trend trades are more volatile, and will act the same percentage in shorter term period. (hence if ur short, profits in shorter term)
Quoting jacko
Hi Lenny,

1. Trailing stops...I can only recommend them fully. I use 50 pips from the lowest low (or highest high) for Euro and 75 pips for GBP. (I am now starting to get interested in GBP). As the trend gets closer to "significant" numbers, I reduce the trailing stops

2. Risk/reward ratios are useless (in my opinion). No-one can predict direction of a trade....so how can you predict your reward?
I admit that if you use stop-losses you know your risk, but how do you "know" what the return will be? And why put a limit on your profit by aiming for a set amount of pips anyway?
My opinion only...the "reward" targets are for those delusional enough to think that the market will do what they (the trader) want it to do.

I hope that answers your main questions.

.
Hi Jacko,

I did not mean the term risk reward in a most common way used or applied. Absolutely noone knows where the market will go and how far. But in every trade by selecting a stop loss we identify our risk exposure and therfore looking for a favorable condtiotns to choose the trades that those risks would not exceede the potential returns. For instance, when you are using a stop loss of 75 for your potential cable trade and you see a strong resistance/support within 50 pips most likely you will not enter this trade.

I like to think that I am not set on any target but project a minimum, typical and maximum targets. And I would let the trade run its normal course (stops or reaching this potential minimum target) until I start moving my stops.

You have that too but you are utilizing trailing stops and that is great. But you first have to choose favorable conditions for your trade befire you enter it.

I hope I was able to clarify this point. Not looking for academic credit
Quoting jacko


3. If you are still confused, print it off and show it to a 5 year old...they will get it right EVERY time...LOL
Jacko, this is one of my most favorite comments ever written on FF. Gosh, I've made things way too complicated at times. I remember meeting a trader who taught his 8 year old son to trade, and the kid would come home from school, during the "lame" market hours of the Asian session, and implement a simple set of rules. The 8 year old was more profitable than his father week in and week out. The kid just didn't overcomplicate things.

Thanks for your comment. I am still smiling about it.
jacko,

I have been following your advise to watch the long-term trends. And this is what I discovered in GBP/USD.

Seems like the GBP/USD is ripe for Sell. I'm going to be bearish this week. Even though I could be wrong, at least I'm training myself to befriend the trend, hehe.
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