Trend Trading

cmiiw, but this method can be simplified by buying at the break of high or low of daily candle, set 1 ATR as stoploss level and ride along the current trend or direction till it ends. am I right?

To some degree.

But to over-simplify that much just ends up glossing over the details of what people are trying to do, versus even the basics of "letting profits run", which is a hugely general statement, but one that seems to be ignored by a large majority of people trading (statistically proven).

Hi Nefser, could you please elaborate more?

What do you want me to say about it that isn't already clearly outlined in the actual thread? Do you expect me to somehow re-write Graviton's posts, or paraphrase it to make it somehow easier to understand? Graviton writes very well and very clearly.

As I said, you are over simplifying the process.

Here's another simplification: "Get in trade, add more trades, close all trades, profit."

There, that sums it up as well. Although it actually covers nothing about all the details regarding how many positions to put on, margin, risk, money management, etc. Those are some of the reasons this thread exists, vs just "Buy into a trend and then keep adding positions". The info is in the detail.

(Reposted from my chat room) Sometimes simple things are the hardest. Today, I'm in the lovely position of trades doing much better than I anticipated. The question is, should I go ahead and take massive profits now, or at least take some of my profit off, and if so, how much? This may be the hardest question in trading, but the answer is really simple.

Hint: There is one and only one correct answer to this question. Any guesses? No fair peaking into the chat room for the answer. Nefser already guessed it there.

Dscap, I'll try to answer any questions you have to the best of my ability. The method is fairly simple, but it might be counter-intuitive for many. Some things, like buying high and selling higher or selling low and buying back lower might seem just the opposite of what many have been told to do. As noted above, some details like money and risk management would apply to any trading system. You are welcome to try your version of trend trading and post your results here. I'd be interested in seeing how it works out. Best success. - G

The answer Nefser gave was, Let them RUNNNNNN Forrest! And that is the correct answer. At the core of trend trading is letting profits run. They have to run to grow large enough to make up for the many small losses and still leave capital to compound up for the next round of trading. So, I'll let my profits run as long as I possibly can.

So, once again I believe it was Van Tharp who said something like, You are really good when you don't have to make any decisions, your system makes all the decisions for you. I may not be quite that good yet, but I'm working on it.

I could not have put it better. Usually the best thing one can do is open a position at the beginning of a trend and keep it open in the long term, only closing it when they notice there will be a major reversal.

Dianajs, Agreed. I don't even worry over trying to get in at the beginning or staying to the very end of a trend. I'm happy to just grab some pips from the big fat middle of it. Looking at monthly charts, we'll see trends run for 3 years or more. Of course I'm not trading that chart, but there's plenty of opportunities to get in make a wad of pips and repeat that process many times over in that period. I make no effort to try to get in at the very beginning and the only reason I get out is a retracement is too deep for me to ride it out. I'd rather just exit with my pips and re-enter later after the retracement ends. Most of the time, for me at least, it doesn't work well and I lose a little bit. Sometimes I make a little, and rarely I make so much that it pays for all my losses and leaves cash in my account to compound on the next round of trading. I only wish I had known that's the way it's supposed to work half a century ago. Oh well. - G

My problem with not opening a position at the beginning of the trend is that when I don't do that every major correction was a source of anxiety. Now I keep short term positions and I avoid the problem altogether.

Major correction...while you were in profit? That's usually just greed subconsciously causing stress, due to concerns that you might lose that potential profit. No real risk, just perceived risk about losing something you don't actually have.

Ensure you put in a low SL, for a minimum profit you're willing to walk away with, and let it run.

Up +50, maybe set it to BE, 1 or 5...?
Up +100, maybe set SL to +25 (-75), or SL to +30...+50...?

Learn to ACCEPT the final result to be wherever your SL is set and nothing more. Want to get the most of a +200 move? Set SL to -10 below current price.

Make it that tight and you may get closed off fairly soon, but then again, you got most of the "current" potential profit, but nothing of the potential future profit, which could be another 200-300 or more.

Learn to accept your SL level pips and let the trade run. No real risk, except what's in your head (greed). When you let the reward portion of your brain learn to appreciate and look forward to those larger moves, that's when you'll realise the difference.

I like this quote:

"When you let the reward portion of your brain learn to appreciate and look forward to those larger moves, that's when you'll realize the difference."

That's worth meditating on for a bit.

Two thoughts come to mind, after I finish

50 days breakouts? - you will get creamed

Only long? you're missing the point of trading Forex

It will be UP and DOWN and UP again within the 50 days

Here's my help for you, forget about hanging in there for a big trend, take what you can get

Edit: FX is leveraged, no need to hold like stocks, get that out of your head

You like breakouts, so do I - mainly on weekly highs and lows; watch the 4-hour price action

Here is a teaser for you, good luck

It's very quiet in here. I'm guessing everyone has run off to try this method and they are busily making a quiet fortune. I hope so. We set out in the beginning to discuss trend trading for profits and we've had some lively and interesting discussion. If I could, I'd like to wrap up my observations a bit. To organize things I'll consider the five categories of trend discovery, money and risk management, entry, trade management, and exit.

I'm of the opinion that trend discovery is rather simple. Just a little reading on the web should provide all the background one needs to spot a potential trend (in hindsight). Remember that the future doesn't exist so we are putting out no effort to try and predict it. Trying to predict the future is just plain impossible, so we wont wast time trying. If price is above the 200 period moving average on the H1, H4, and Daily you may have discovered a pair trending up. It should be very apparent even from across the room.There is no reason to make things more complicated than that. If you have your own method for spotting a trend, use that. It wont make that much difference.

Probably about half of those apparent trends we spot will fail before we can cash in on them and no amount of math is going to change that. To succeed we'll simply require that any trends that last long enough will pay us at least 3 to 1 for our risk and that's enough to make everyone reading this very wealthy. When I propose a 3 to 1 return to risk, that is really the very minimum we want from a good trade. We can use various trade management techniques to move some of the better trades into the 5 to 1 or 10 to 1 range.

I could post a dozen charts of pairs that look like they are trending now, but I'm not sure it's necessary, and as I said, half of those apparent trends will fail before we can cash in on them. It's the ones that don't fail that will give us joy. If someone else want's to post a chart of a possible trend and open it up to discussion, that's fine. Please do keep it simple though. I'm a simple minded guy and if I can't see your trend in 3 seconds, I probably never will. Otherwise, I'll assume trend spotting is pretty darned easy and even if it's not, it won't matter much. After just a little practice, it will get very easy to see them. In any week we should be able to spot a dozen more or less. The trick is to not be discouraged by the fact half of them fail. That's not the fault of the trend spotter. It's just the way the market operates. Don't go taking it all personally. There is still money to be made.

I'll move on to money and risk management, unless there are comments or questions? - G

Before you move on, I thought I'd drop in a few bits to discuss (or leave for another time). So, what to do about identifying trends and when you enter? I suspect that many people tend to have a variety of concerns/stages of questioning the existence of and possible sustain for a trend (assuming one has been identified).

Is it a trend?
- Is it ok to enter at the beginning (and how do you know it's the beginning)?

- Is it ok to get in so early if I have a signal, even though I don't see any trend?

- If I have a signal to buy on three different pairs, how do I know which one will trend (or any of them, or more than one)?


Looks like a trend, act's like a trend...:
What about if I missed an earlier signal (or even missed the 1st signal and later confirmation/2nd signal), and I think the trend looks like it's building, but it's already gone X bars and pulled back some:
- Is that too late now?

- How do you know if the trend will continue, and if it is, when will you know?

- Should I go in the reverse direction?


It is/was a trend!:
This leads to:
- What if a trend as at the end? How do I know if it's gone "too far"? I don't want to get in too late. :-(


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I have my own responses to these, which is that I ignore most of all of the above (except a bit of the last one). See a signal, confirm and check higher TF's for direction, and go!


However, for any "late stage"* trends, higher TF's (D1, W1) should give me insight on how likely(?) a trend seen in H1 and/or H4 will possibly stop or stall or reverse, due to having a range or previous High's or Low's that may affect it. Be aware, but a signal is a signal. You just might find that E/J and U/C are both moving up nicely, but E/J might have a more 'open' upside. So if I could, I'd trade both, but if not, I'd probably choose E/J with the potential for more movement**.



* "late stage" <--- How late is late? How do you know? I'd say any trend you can see that has 2 or more pullbacks and leading to a section of consolidation/resting will give a sign to many that it's "too late", ( or perhaps like a large spike that is pulled back in ). There are probably technical measurements of price action, momentum indicators, etc. that may give you some extra confidence of whether there's strength to continue or not. But for me, it really is never too late (as I just don't know). However, I'd still probably defer my choice to a signal on a pair in the initial phase(s) of a trend. Trading margin is limited for many of us, so we sometimes can only choose a few pairs to test the water on, and thus we'll always be missing some.


** ( There's always an alternative situation, as U/C could get up to the level of previous High's on D1 or W1 and then breaks out. It might end up that U/C becomes a rocket in comparison. But, who knew? )

Just when I thought I was getting a grip on these concepts, up pops even more to consider. Kind of like a kaleidoscope.

But to back up a bit - I think that as a practical matter it is important to be clear in one's own mind as to which TF you are trading when talking about Trends - recognizing that the whole notion of TF really is an artifice to more conveniently process a data stream.

I recall that G. has noted several times that Trends may exist on many TFs and may do so simultaneously. Having selected your preferred TF then one or two above and below are useful for confirmation and trade management.

Best, AG

No need to panic. :-)

For people who are already somewhat confident about choosing trades (with expectations of finding trends), this isn't much of an issue.

However, given the comments I've seen in various threads with exactly these sorts of questions, I thought it was be helpful to throw them out as a collection. Discussed or ignored... I don't mind which. ;-)

...of listening to noise like this.

Just ignore this nonsense.

Oh my, that's a lot to consider. My trading is much simpler than that. I'll try to answer each in order as best as I can from my experience. Others are welcome to pitch in.

I only know it's the beginning of a trend in hindsight. Of course, I can't then go back in time to enter, so I very rarely get in at the very beginning of a trend. That's OK. Good trends often last months and sometimes even years. There is no rush to get in early.

Only enter if you can see a trend. We are not trading off any technical signal other than a trend. If you think you see more than one trend, enter them all. If you can't afford to enter them all, you are trading too large. Close the trades that don't work and add to the ones that do work. Remember, we can't tell the future, we don't even try to.

It doesn't matter if you missed an earlier signal to enter a trend. Many trends run for weeks or months or longer. Don't miss a good one because of indecision. Enter it when it's going your way and it either works for you or it doesn't. If it works, add to it and if it doesn't, cut your losses short.

You never know if a trend will continue. That would be boring. You just enter and ride it while it runs and have a plan to get out when it's over.

Ride a trend in what ever direction price is taking it. Usually, when I exit a trend it's during a deep retracement and it takes a long time for a trend to form up in the opposite direction, if it ever does, so their is no whipsawing.

We need a signal to enter what looks like a good trend and a signal to exit. To summarize quickly, I've stated my entry signal earlier, a simple golden cross on the H1, H4 and Daily. I always risk the same amount, 0.5% of my account balance per trade and once half of my margin is used, I don't take any more trades. I exit when the top two trades on a stack fall back to break even or when I hit a portfolio profit target of 10% floating profit on my account balance, ignoring any losses or expenses it cost me to get there. I'll discuss entries and exits more in another post.

You can never know that a trend is at an end, since you can't know the future. You stay in it as long as it is making a profit and exit per your rules. You can't out-think the market since it doesn't think. You can only trade which ever way the trend leads you and if you can't see a clear trend, then don't risk entering it.

I think I addressed most of your questions. The fact is, this is so simple it will go right past most people who are trying to find a complex multi-variable third derivative relationship to explain it all. Simply trade with the trend. I've stated my rules to enter and exit, you can use mine or make up your own hopefully better ones. Did I miss anything? Comments? - G