Is The Trend Really Your Friend?

Lol, and do you still have your Y2K emergency bunker stocked? :-)

Either way, I either get 11 months of wealth, or it keeps going. Better than the alternative! lol

IMHO the trend is definitely our surest friend, the longer/stronger the better, and we trade against a strong trend at our risk. The "impulse" moves (in the direction of the trend) are necessarily longer, pip-wise, than the "retracement" moves (against the trend), both improving probability of profit, and allowing greater margin for error in terms of timing entry. Drawing a channel around a trend illustrates this clearly.

In terms of trading pullbacks in longer term timeframes, one of my favorite tools for determining trend direction and strength (both length and slope) is the standard deviation channel. I adjust the number of SDs, so that roughly 60%-70% of the prices fall inside the channel, giving "overbought/no man's land/oversold" demarcations. Then if the trend (channel slope) is clearly rising, I will buy below the lower boundary (oversold), when I see what I consider a decent move upward from what looks like a possible swing low (and/or use candle patterns: James16, hammers, railway tracks, morning star, engulfing, double bottom, etc; or a bounce off an obvious trendline, or prior horizontal support). Vice versa (mirror image) for downtrends. If the channel is sideways, and wide enough to allow decent margin for error, then I use (albeit with some caution, and reduced position size) much the same logic to once again trade across the channel.

If the channel slope is steep enough upward, then sometimes I'll enter (long) in the bottom half of the channel, if I get a strong enough (bullish) reversal pattern.... depends on judgment and my (growing!) experience.

This is a very simple and rough approach, but it suits me, because I'm coming to believe that trying to be too numerically precise in timing entries serves little purpose. Basically, earlier means (on average) higher win size, lower win rate; and vice versa. The fact that some folk delay entry until the previous swing high (in a long trade) has been exceeded, while others (like me) prefer deepish pullbacks**, and a third group effectively compromise by using something akin to Demark trendline breaks, further suggest to me that timing is somewhat unimportant, at least in the context of annual bottom line.

Unlike Bollinger bands, for example, the SD channel redraws itself with each new developing candle. IMO it's necessary to construct the channel around an absolute minimum of 50 candles, and preferably a lot more, to have any kind of statistical validity. A strong breakout, spike or other aberration near the beginning of the channel means that I'll adjust my starting point, to avoid it, as it tends to skew the accuracy of the values. If I can't draw a what I consider to be a "decent" SD channel, then I'll either try a different approach, or look at another pair. I prefer to be fairly selective; if I miss an opportunity, the market will always be there tomorrow.

Another strategy I'm experimenting with is to enter part of the position (in a long trade) when the previous candle's high has been exceeded, and then the second part when price retraces 50%, or possibly more (e.g. 61.8%), toward the swing low. That way, I can place my protective stoploss well below the swing low, hopefully out of range of the stop hunters, and still maintain a respectable risk/return profile. Quite often price does retrace (could it be stop hunting?), but if not, then I simply trade a half (or part) size position.

I generally take some profit at or near the opposite side of the channel, but I try to be disciplined enough to let profit ride as long as possible, with at least part of the position, especially if the trend is strong (steep channel slope) or prolonged, and/or backed by favorable fundamentals. I will also take some profit if momentum appears to be slowing noticeably around the halfway point, or higher.

I'm currently experimenting by entering with 3 orders, sized 2,2,1 units, which subsequently allows a three tiered profit exit strategy based on any combo (e.g. 1, 2, 2+1, 2+2, 2+2+1), using TPs and/or trailing stops. However, my initial protective stop is "hard", and universal across all part positions. I'm not saying that this approach necessarily offers better overall bottom line expectancy, but it suits my personality to "hedge my bets" a little, between win rate and size. So instead of getting either a "full win" or a "full loss" each time, I find I'm getting a smoother overall level of income.

As you can see, all of this is a very discretionary process. I keep my expectations low: I'm happy if I can capture 40% of any total move. I'm very philosophical (I discuss my trading psychology here: http://www.forexfactory.com/showpost.php?p=1498154&postcount=29), and still very much experimenting, and learning. Feedback is most welcome.

** IMO, trading pullbacks offers some insurance, as one is not only trading the trend, but also entering (long) when price in the shorter wave is oversold, so there is some possibility of mean reversion, even if the trend is about to break down.

I'm also experimenting with various types of breakout trades, and fading extremes, both in different timeframes, but this a "trend" thread, and besides, I've written enough already.

David
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But something dramatic could happen even earlier than this! I've been told that Nick Leeson brought down the Barings Bank after it had been in existence 233 years; 9/11 apparently occurred on the 233rd day after the traditional Presidential inauguration date (Jan 20); and 2009 is 233 years after 1776, which I believe was a significant year in US history..... (note: 233 is a Fibo number).

The trend is my friend

The trend is not your friend because it doesn't exist . That's right, people - the trend does not exist! Show me any trending chart and I can show you the same currency pair in a different timeframe with the opposite trend. There is no trend! What you're seeing is random price movement with occasional Levy flights ( if you don't know what a Levy flight is, go to wikipedia).

Randomly generated charts show all the same features as real charts - head-and-shoulders, wedges , pennants, flags, support and resistance levels, and ,yes, trends. Don't believe me? Go to random.org and generate your own synthetic charts , you'll be amazed and hopefully enlightened.

Read Nassim Taleb's excellent book "Fooled By Randomness". It will be quite an education. The human mind is hot-wired to see patterns, even when the patterns aren't really there. When we go out at night, we see the Big Dipper, Orion, Andromeda, and other constellations. But are they actual patterns? No, the distribution of stars is in fact random - the constellations only exist in our minds. Same thing for our chart patterns - our minds are trying to impose order on what is actually a random process.

I know some will be angry, but ask yourself this - has your trend following made you rich yet? If not, maybe "trend-following" is just another broker's gimmick to pull in the suckers. I too was a trend-follower and lost a lot of money along the way. So much for my "friend" the trend.

Try this - draw a random horiontal line anywhere on a chart and use this trading rule: buy when price goes above the line, sell when price goes below the line.
I guarantee your results will be just as good as your current trend-following system.

Find a pair that trends well on a weekly TF. (GU, EU, EG) are good ones

Look for reversal signs by candlesticks.

plot lines to locate support/resistance area it is responding to.

Use fib tool ( works well for me) to help locate next support/resistance. (works well on above mentioned pairs not surprisingly).

Use TL's/Channels etc.

Now Connect the dots.

There is no trend.
If you can see the trend, you are too late.

Um..Nope, of course there are those who would do the contrarian, just for kicks but it rarely is ever profitable..rule of the thumb, following trends, from short term ones to long term ones like weekly or monthly pays up only if you follow the trend..

Very true! At the same time, you indirectly hinted at a way to anticipate a new trend.

Hi,

I have been trading for many years and trend trading is the basis of all my trades. Trends can be found on any timeframe, so even if there is nothing to trade on the higher tfs, there are intraday trends on the lower tfs. I trade on 2 accounts, swing and intraday.

The key is to exploit the trend when you are in it and there are a lot of different ways of achieving that. There are lots of great threads on FF on trend trading for anyone to take a look at.

MT

Thanks for resurrecting this thread. Please excuse my self-centeredness, but I found it interesting to read my 2007 post. Makes me realize how my learning has progressed over the intervening 8 years. And also that market behavior has likely changed, subtly but significantly, over the passage of time.

You and me both mate, I cringe when I think of the ideas and attitudes I had back then .... and how adamant I was that I was 'right' and everyone else was 'wrong'


If you bring up some long term charts and zoom out so you are looking at 10+ years of PA, you can kind of see how the market changes gears every so often. In that time there have been many system threads posted here that have become very popular then faded away. Some strategies are designed to make a killing during fast moving trends, some during slow moving trends, some during volatile sideways moves and some during low volatility. When you take a step back and look at the big picture, it's not hard to imagine what kind of strategies would have succeeded at which times.

Interestingly, most of these strategies become popular at the worst possible time. Turtle trading/Donchian breakout - type strategies were all the rage in the late 2000's, just before the markets made their big sweeping moves in 2008/09. Then DIBS and other fat-tail strategies became popular, just as the markets started moving sideways. Then Sam Seiden's Supply and Demand theories became popular, when volatility was drying up.

Like an inexperienced trader who switches systems whenever things don't go his way - his career becomes a collection of downswings, devoid of the interim recoveries ...... the masses seem to gravitate toward certain strategies just as the markets are moving to make those strategies no longer profitable.

Of course I am saying all this with the benefit of hindsight. But if you correlate those market conditions with their corresponding macroeconomic environments - slow steady growth across the board - the GFC and it's massive risk readjustments - the "race to the bottom" and flat, low interest rates - slow, uneven reinflation - I don't think it's out of the question that a clever trader, who begins his trading approach with the bigger picture in mind, could potentially anticipate which kind of strategies are going to be profitable in the near future.

Yeah, me too. And there's not a word about macroeconomics or institutional orderflow in my 2007 post. Apparently I had no idea about their importance back then. LOL

I reflect on some of the stuff I wrote as a noob, and wonder "did I really think that?".
But then 8 years from now I'll doubtless look back, and consider myself to be equally naive.

Agreed, IMHO its about having both the right kind of knowledge, and a finely honed instinct for opportunity, at the right hand edge of a chart --- whether it's an intraday chart, or a monthly chart depicting the last 10 years' macro-climate.

A good example (which I saw only in hindsight ) was the aftermath of January's SNB bombshell announcement. While virtually every discussion was centered on massive account losses, and brokerages going into receivership --- and how to best protect oneself from a repeat occurrence --- I expect the really savvy traders were asking themselves "what must happen now?". The answer, of course, was that removing the floor left the CHF hugely overvalued, and that that the SNB would necessarily take appropriate measures to return it to what it deemed an acceptable level. And so it played out. IMHO the hallmark of a really proficient trader is to see (and exploit) that kind of imbalance, while the window of opportunity exists.

All of which has very little to do with TA.........

Trading against the trend is the same as catching a falling knife IMHO.

I have been trying to find the highest point to sell and the lowest to buy, and you know what? It does not work. Go with the flow and you find yourself at much better position in most trades.

I have always traded following the market trend and I haven't obtained bad results, I don't know if going against it is more profitable, although riskier is for sure, so I will remain following the trend for the time being.

No doubt that trend is your friend saying is true. However, identifying, determining and executing based on your trend analysis is the hard part which as a beginner I find it very hard.

u can't said that trend is friend or not, all u need to know is how u use it to be something that can help ur analysis to predict the price movement, so u can make more profit and avoid lose.

Yes I believe trend is your friend and your testing result already said so.

There is no such thing as a trend in the market.

It's an illusion.

Do this simple test:

You think you see an up trend, therefore put some money on it: you buy.
Now wait..
Almost immediately the trend reverses. Your stop loss gets hit.
Repeat ...

Found exactly the same. Sell high, buy low makes perfect sense. But is really hard to do.

I love "Trend is your friend" and in fact trend is the only "indicator" I use for opening a trade. (besides Fibonacci to find a good entry/exit levels)

You seem to have the right idea about the trend being your surest friend. However, what you go on to elaborate seems to confuse the issue and hints at an underlying distrust of the 'trend'.

The trend is your friend only if you can trust it. You don't have to examine its motives and try to second guess it by studying retracements, over-bought/sold levels, candlestick patterns etc.

Profitable trend following involves:
- Going long when the trend is up and only getting out when this has ceased.
- Going short when the trend is down and only getting out when this has ceased.