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Are you a trend trader or a counter-trend trader? 29 replies

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Trend Trading

Quoting Nefser
Hello. Back after a break (both from the forum and doing any trading) I was about to include a few quotes from the thread, but after I started writing a reply, I thought that might distract from a few items I was going to mention. ------... Trends As far as trends go, they do exist, but its whether a trend runs long enough in a specific direction that we can take advantage of it. That's all. A sideways 'trend' is an oddly (or perhaps call it inconsistent? repeatedly consistently inconsistent?) ranging trend and much harder to profit from. But any...
Hello again Nefser. Again we are in pretty close agreement. A ranging market on a longer timeframe usually looks like short trends on a shorter timeframe. Any of those can be traded for profit, but one must have a game plan. A scalper may be exploiting very short directional moves on a tick chart or on 1 or 5 minute timeframes, and a very long term trader may be exploiting trends of hundreds or thousands of pips on the monthly, weekly and daily charts. It's rare for price to wander aimlessly with no discernable direction on any timeframe, but of course it happens and in those cases there isn't much to trade for profit. I'm not as fast as I once was, so these days I go for hundreds of pips in the weekly to one hour charts. I look at longer and shorter timeframes for additional information, but most of my charts stay on the 1 hour timeframe most of the time. That seems to best fit my style of holding a good trade for one or two weeks. Sometimes if I'm in a bad one I'll close it very fast to reduce losses, and occasionally, when I'm in a very good one I'll decide to let it run longer. It's pretty obvious when I've entered a good trade as everything is working just as I had hoped and it's making lots of pips. It's easy to stay in that trade and let it run up the pips as long as it's going my way. The hard part is weathering the retracements. Retracements will almost always occur and they should be expected. I'll discuss this latter, but the end of a retracement in a good long running trend is the best time to add to a winning trade. In that sense, I look forward to retracements. In the vast majority of cases the retracement will eventually end and the longer timeframe trend will resume. The difficult thing is when the retracement goes so far that it threatens most or all of the profit that was earned on what was previously considered a good trade. It's a real test of nerves and the only way I know of to produce consistent trading results is to have hard and fast rules as to when to bail out with profit and when to stay in risking profits to wait for the end of the retracement. Additionally, one must know when it's appropriate to break those rules. - G
Quoting Nefser
Hello... ------ Pyramid trades Absolutely. Having a small set of 'seed' trades that are 10-50% of your full trade size is key. Build your position and allow your lowest trade(s) to be your profit 'insurance'. Don't close all or part of your trade early, as that limits the 'financial insurance' to the limited pips you've take off. The insurance trade needs to move and breath the same way all the upper trades do. It's only when the price moves significantly back into your position(s) that make you re-assess them (and the trend) and close off some...
I've had very good luck with pyramiding trades. Of course, I'm very flexible about how I implement them, but usually I only want to pyramid the very best of my trades. Every really good trade will at least make it to a 2:1 reward to risk, so that's where I start looking to put the pyramid on. The best add-ons are usually put on after a retrace starts to end, but that's very difficult to time. I'll usually add about 40% to 60% of my original trade size. Since I will have moved my original trade sl to close to BE by then, I'll wind up trading about 1.5 times the size for about 0.5 the risk of the original trade. Of course, I could put the second trade on as large as the first, but I want to reduce risk as trades proceed. It's a philosophical thing. I very rarely go with a third add on trade, but when I do, I move stops so I have no risk and some profit is locked in. Thanks for your good comments, Nefser. I look forward to more good discussion of trend trading. - G
I'm pyramiding the Cad/Jpy right now. I just moved the 1'st trade sl to a little above BE and put a second on sized at 60% of the first. It looks like this:

Attached Image (click to enlarge)
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I just moved the sl on first and second trade up to remove all risk and lock in a little profit. A nice place to be. Maybe I'll stack a third trade on eventually, we'll see. So, it looks like this:

Attached Image (click to enlarge)
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Quoting Graviton
I just moved the sl on first and second trade up to remove all risk and lock in a little profit. A nice place to be. Maybe I'll stack a third trade on eventually, we'll see. So, it looks like this: {image}
Mate, is this hedging strategy or anything else?
Quoting MariaEduard
{quote} Mate, is this hedging strategy or anything else?
Hi there. No, there is no hedging involved. It is a pyramiding strategy. There is much written on the net about pyramiding trades. The important point is to always work towards reducing risk while executing such a strategy. - G
Just to clarify, pyramiding or stacking trades and trend trading are two separate subjects, but the two activities go well together. Once one gets proficient at picking out trending pairs to trade, adding to those trending pairs trades can greatly enhance the return to risk ratio. The important point, critical really, is to not get greedy along the way. There are ways to pyramid trades that will reduce risk as one adds to the winning trade. One should always trade to reduce risk. So, say one started with a 3:1 reward to risk ratio with a stop of 50 pips and a TP of 150 pips, when the trade is 50 pips ahead, the stop can be reduced to 25 pips below entry. Now the risk has been reduced to 1/2 and the anticipated r:r ratio of the trade is 6:1 and since it's now 75 pips to the sl, the chances of being able to stay in the productive trade long enough to make a good profit have greatly increased. Of course, this only works with good trades, but those are the only ones we want to add to anyway. That's just one method. Another is when it's time to add another position to the trade, stops can be adjusted and the additional trade on the stack can be smaller, so that all risk can ultimately be removed from the trade and reward enhanced. If there are any questions about this process, we can discuss it. Otherwise, I'd like to get some opinions from experienced traders about how they recommend handling those evil retracements and how they would exit these stacked trades to take their profits.

Just for example I've added a third trade to my stack on the Cad/Jpy trade I posted earlier. I moved the stops enough that I now have no risk in the trade and good profits are locked in. I'll post the real time chart below for example. Best success! - G

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Quoting Graviton
I'm just thinking about the pyramiding of trades today. ...
Does it really help to add to winning trades, and if so, add how much and when?
...
Now let's consider adding to the winning trade. We certainly wouldn't want to add to the trade if it is showing any signs of weakness, so we would want to only pick the very best of the best trades by some objective criteria to try this strategy. Maybe only one in 10 or one in 20 trades would qualify for this very special treatment. So that answers the question of when we should consider pyramiding. We should...
For as much as we agree on most of this process, I have to disagree about only stacking only the "best" trades. I never know which ones these are. This is the same issue I have with trends (in that I don't know when I'm in one). I only tend to find out when it doesn't "seem" to be trending is when a reversal (or strong retracement) seem to suggest that closing down trades in that direction is probably wise.


Otherwise, I stack ALL the time. Every trade I put on is done with the plan that its a slightly lower trade size (to reduce the risk/damage done if I have to close at a loss) and then just add to a trade if the current one gets to 100+. Quite simple, really. I don't over think it and I don't really worry too much about entries. If it's a trend, it will work out. If it's stalled and drops back...deal with what I see and either wait or close.

The other benefit of stacking is that it increases my return for each trade I add to the stack. Due to my current trading re-start (with limited funds), I have been taking trades out of my stack, just to build capital. Once I have a bit more in my account, I will start to leave more trades on for longer. I've had stacks of 5 or 6 trades in the past (or more), but sometimes it just seems visibly risky having that many open. As they are all (or all but the most recent) are in profit, it's not really an issue, just psychological.

Stacking trades made my trading work far better than when I didn't do it. That's my un-tested validation for it. :-)
Quoting Graviton
Just to clarify, pyramiding or stacking trades and trend trading are two separate subjects, but the two activities go well together.
Well, if you find a trend, it'd be a shame to just have only one, lonely trade, adding pips into its basket, quietly mumbling to itself. Trades need friends! :-)

[ I really can't imagine doing it any other way. ]
Quoting Nefser
{quote} Well, if you find a trend, it'd be a shame to just have only one, lonely trade, adding pips into its basket, quietly mumbling to itself. Trades need friends! :-) [ I really can't imagine doing it any other way. ]
Someone here said, you only know it's a trend in hindsight. I know it's trending because I'm making money in the trade, which is of course purely hindsight. When I said I only pyramid my trades if they are good ones, I'm defining the good ones as the ones that I'm making money off of. Usually given time, each of my trades will either make or lose money. I pyramid those that make money and delete those that lose money as quickly as I can to reduce risk of loss. So, I am always managing my trades from hindsight. Of course, if I knew which ones were the good ones and which were the bad ones in advance, through some mystical powers maybe, I wouldn't take the bad ones in the first place.

But let's talk about handling those pesky retracements and how to best exit the stack with sweet profits. I've simply been exiting the stack when the last two trades in the stack fall to break even. So, if I only have two trades in the stack, I exit BE overall. At 3 trades I make a little profit off the original 1st trade as the second and third trades in the stack combined BE, by 4 I make a nice profit off the original 2 trades in the stack as the 3rd and fourth together breakeven. My point is I'm not taking any additional risks by pyramiding, in fact, I'm trading to reduce risks, always. Does that make sense?
Best success. - G
While I'm waiting for some discussion, I'll continue to ramble on about pyramiding trend trades. It's tough to ever let go of a nice stack of trades that has been building huge profits over a long time, but I think we can all agree that no trend can continue forever. If it did a currency would end up being priced at zero or infinity. It's just not practical. So logically, I think we could all agree we will have to exit our most beloved trades sometime. Of course we want to exit while the trade is still in profit, and hopefully get out with most of the profit in the best trades. My best trades will have several trades stacked up and my exit method will always insure that I exit with some profit, or in the very best ones, most of the profit. Essentially, the better the trade, the more profit I'll exit with. But I also have another exit point that is more difficult to define. I know from experience what a very good week or two of trading looks like. If I have had a very good week, say I'm up 600 pips or whatever my gut tells me this has been an unusually good week, I might just exit everything and cash in my profits and start all over next week. I can't really say that is smart but it definitely gets me out with a pocket full of pips on a regular basis. Perhaps others would be willing to give up some of the secrets of their success? - G
Quoting dscap
{quote} now I am seeing long on GA, GN, EA and UJ since monthly to 4H tfs are all pointing up based on its ema10.
Dscap, I'm perfectly willing to share all the trades I'm currently running. I'm even happy to display real time charts of all the entries and stops and TP's, but I'm not sure that would help anyone. There's nothing really magical about my entries. You could probably flip a coin and do as well or maybe better at entering trades as I do. For me at least, it's all about the management of the trades once I'm in them. I cut losers very short, I add to winners, I always trade to reduce risk and I take most of my profits out before they vanish. I'm also happy to discuss just how I do these things and try to get other experienced traders to contribute as well. I'm hoping that discussion will be more beneficial than simply giving out signals. Best success. - G
Quoting Copernicus
{quote} Tough question......however let's assume just for an example that of all extended directional moves that get classified into our definition of trend, 70% of them are attributed to random price movements (fake trends) with the balance being attributed to fundamental drivers and deliberate rational behaviour of investors (real trends). If we trade all of them using *non-predictive* trend following rules irrespective of their fundamental basis....then we would profit from all of them......
Great to hear from you Copernicus. Thanks for the insightful feedback. This is the sort of discussion from experienced traders I hope to encourage here. You are exactly correct, of course. It doesn't matter why price moves, as long as it moves mostly in the same direction for an extended period of time, we can profit off it using the right methods. Money made off random price movements with a strong upward or downward bias over an extended period of time spends just as well as money made off a trend driven by fundamental factors. Thanks for touching base with us and please contribute anytime you wish. Best success. - G
Quoting MaxenshteinD
But there are trends visible in random coin toss generated charts :O In my opinion to identify the trend correctly, we must simply understand which side of the scale is biased. For example in the following 3rd chart (more in the libk below) you see bullish trends, created simply by the the probability of an up tick being 55% while the probability of a down tick was 45%...
Max, your post is very informative. After thinking it over, I have to agree. In most of my trades, I never know why price moved as it did. I simply enter into what looks like a good trend to me and exit when my rules say too. Sometimes I get curious and go and do some research to see what reason the talking heads are spinning to explain a particular market move, but I can't say it helps my trading at all. In fact, it may cause more uncertainty than just trading what I see. Thanks for taking the time to post the charts. Best success. - G
Knowing trend, consolidation, topping, basing reversal in intra-day, mid and long term context is only half the equation. Knowing how and when to trade in those dynamic market conditions is key. Nobody knows where and when the price may be going in the next minute BUT one must always know where and when the price is going next immediately AFTER where price have gone.
Contrary to popular belief if one is lucky enough to be mentored by a Knowing mentor then he should be able to apply and use the method to profit from trading right away and definitely not months after that. If not some may never be able to make it no matter how long they try. Why? simply becos the right method is not made known and revealed in this forum yet.
Any real mentor must be able to describe any current live prevailing PA of any pairs in five simple sentences and have to be proven to be right 60% out of five or ten calls. If you cannot do that then the forex journey is going to be long and hurting. Hehe truth hurts.

Cheers and happy trading.

.
Well, obviously the yen pairs are trending well this evening. I have 4 yen pairs trading. I'm running 4 stacked trades on Cad/Jpy with stops raised to remove all risk and lock in profits, 3 stacked on EJ and 2 on UJ and 1 on Chf/Jpy long. For those who believe in such things, Reuters said:

  1. Japan’s annual core consumer inflation ticked up slightly in August but remained distant from the central bank’s 2 percent target, suggesting that monetary policy will stay ultra-loose for the time being.

I'm just trading what I see and got curious as to what the talking heads were saying about this.

Quoting Graviton
Well, obviously the yen pairs are trending well this evening. I have 4 yen pairs trading. I'm running 4 stacked trades on Cad/Jpy with stops raised to remove all risk and lock in profits, 3 stacked on EJ and 2 on UJ and 1 on Chf/Jpy long. For those who believe in such things, Reuters said: Japan’s annual core consumer inflation ticked up slightly in August but remained distant from the central bank’s 2 percent target, suggesting that monetary policy will stay ultra-loose for the time being. I'm just trading what I see and got curious as to what...
Very nice and if you don't mind me asking you are trading 4 pairs of yen crosses paying 4x spreads. Wouldn't it be better if you only focus on one crosses pairs with 4x lot sizes?
Anyway congrats on your success and I will be watching your next live calls hoping to ride with you hopefully. Hehehe

Cheers.
Quoting genghistar
{quote} Very nice and if you don't mind me asking you are trading 4 pairs of yen crosses paying 4x spreads. Wouldn't it be better if you only focus on one crosses pairs with 4x lot sizes? Anyway congrats on your success and I will be watching your next live calls hoping to ride with you hopefully. Hehehe Cheers.
Hi gen,

I suggust you start a thread and make some live calls which 60% and 2:1 ,
only high quality calls fits your request are approved there,
at some time or other , some real traders will appear there as you want.

Best regard.
Quoting genghistar
{quote} Very nice and if you don't mind me asking you are trading 4 pairs of yen crosses paying 4x spreads. Wouldn't it be better if you only focus on one crosses pairs with 4x lot sizes? Anyway congrats on your success and I will be watching your next live calls hoping to ride with you hopefully. Hehehe Cheers.
Well, I make a terrible signals provider. Usually if I have 3 good trades and one bad one, I'll post the bad one. As far as spreads, they are generally in proportion to the size of the trade. So the actual spread cost of 1 single lot trade is roughly the same as 2 half lot trades.
Anyways, here's a 4 trade stack with stops adjusted so the last 2 (on top) will break even if the trade reverses, yielding a nice fat wad of pips off the first two trades in the stack that are on bottom. There is no risk in the trade and a reversal still yields much better than my original 3 to 1 reward to risk ratio. As we discussed earlier, this is one way to exit a stack with guaranteed profits. Of course, if the trend continues, I'd stack another trade on and move stops up so the combination of the 4th and 5th trades on the stack would exit break even on a retracement that deep with the first 3 making good profits. Anyway, that's the way it's supposed to work. After 500 practice runs or so in demo, it gets rather easy.

Attached Image (click to enlarge)
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In conclusion, IMO trend trading and pyramiding go together like peanut butter and jelly. Of course if there are no good trends to trade, it wont work and the best we can hope for is to cut losses quick and short. I don't have much else to add about pyramiding trades right now. My rules are all very simple but I'm happy to discuss them with anyone. Perhaps some would rather discuss other topics, like money management, setting stops and TP's, diversification, or something different?

My system just put me in a stupid trade. GA long. I take all of my system's trades, because I'm not smart enough to know which are stupid. I happen to know the Ausi just had it's credit status of AAA reaffirmed, because I can read. So shorting the Ausie was stupid. I bailed out at a 33 pip loss. It just goes to show, you can't win them all.

Now I have to go figure out how to let all this crap ride while I sleep. zzzzzz - G
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