DanUK's Advanced Trend Trading Strategy

Lucky you!! I don't seem to be getting enough sleep these days!

I wait for the break of the candle - normally by 5 to 10 pips.

Regards,

Dan

Hi guys,

Sorry I know I said I would go into trade management in full detail but I've had a bit of a hectic evening and haven't quite got the time to do it now.

I will do it tomorrow though!

Just as a little spoiler though, this is the sort of thing I aim for: the break of this inside bar (using a stop loss of 80 pips) netted a return of 1950 pips (thats a risk to reward ratio of about 1:24) - happy days! Of course not all trades return this kind of money but I will explain fully tomorrow what I try to do!

Regards,

Dan

Hi Dan,

this thread has started in a very elaborate manner. Congratulation for this new great thread. At the opening it is soo much info that I will need a bit of time to read it.

Take care

Zol

Commander

Maybe the next project would be to write a book on Forex Trend Trading

Interesting will be following closely

Hi,

How often do we see such setups?

Hi jaddy,

Do you mean how often do you get good entries or how often do you get entries that yield such high profits?

There are at least a couple of good setups that present themselves every day (depending on how many pairs you watch). However, and this is the part that most will fail on, only a small percentage of trades will yield large profits. I have found that many trades close out at breakeven or for a small loss (more breakeven than anything else).

This really leads on to trade management, so if you will allow me a moment or two I will prepare a simple explanation of my trade management plan.

Back in a mo!

Regards,

Dan

Before I begin I must remind you that trend trading strategies tend to have a lower number of profitable trades and a higher number of breakeven or losing trades however if you manage to overcome the temptation to close your trades too quickly you will find that the profits outweigh the losses by far!

It's the make or break subject.

This is the hardest part of the strategy.

Entries are really quite easy… having the patience to wait for the right setup is harder but even harder still is having the patience to allow a trade to play out. Do you have the patience to allow a trade to run for six months… or maybe even longer if you’re really lucky? What if holding your position(s) for that long meant you had a return of 6000 pips. And what if those entries had an average stop loss of 100 pips… at 2% risk per trade that’s a gross return of 120% and a net of not much less? Do you think that kind of potential would give you the patience required to allow a trade to last for half a year?

If it does then I can almost guarantee you great success with this method (although I can’t guarantee it in reality because every trader must face their own responsibilities and demons).

If it doesn’t then never fear as you should still be able to take a good chunk out of the market, but you might just be limiting your potential. Holding on to a trade is a real tough thing to do (as far as trading goes). But if you can hold onto the right ones then you are going to be able to make some serious returns.

I’m not offering anyone the holy grail here… if you choose to follow what I do you will still face serious challenges and it will be a long hard road but it is a journey that I believe is worth it.

So what is the secret to my trade management?

It’s really quite simple.

- Let go -

That’s it. All you have to do is let go of your trades, sit back and let the market work for you. We are trend trading after all and the market is trending for a reason… all we have to do is find high probability opportunities to get in on the move and ride it out as far as we can.

Of course in reality, it’s not that simple. But that is the basic premise behind my trade management.

First thing of course I have to identify a high probability setup that will get me in the market in the direction of the trend. Once I have found my ideal entry signal (as outlined in my earlier posts) then it is time to get in the market. I enter and allow the market to work. If I get stopped out that is fine – it happens and assuming I use a conservative risk percentage I will be around long enough to get in again. If however the market moves in my direction I will look to move my stop to breakeven at the first area that the market is likely to stop me. This is one of the harder aspects of the strategy and one I will come back to again with more detailed examples.

Once I have my stop at breakeven I will leave the trade, let go and move on to my next position. I want to give the market enough time to let my position grow. If it doesn’t then I will get stopped out at breakeven… that is fine; there will plenty more opportunities.

Not until I consider the trend to be changing will I close my trades. That may sound a little daunting at first but it is actually much easier than it may sound. And even if I am wrong and the trend continues then so long as I closed out for a good profit I will be fine! And I will get back in on the trend.

I hope that gives a good insight into how I see things. Trends tend to last for months in the forex market and I want to allow my trades the breathing space to catch as much of it as I can.

To me this sort of trade management has become second nature but I’m sure there will be questions so please feel free to ask about anything I haven’t been clear about and I will be happy to try and explain in greater detail!

Regards,

Dan

Nice one Dan, I'll be following with interest.

Hi Dan - thanks for all your hard work here!

To make sure I've understood you correctly so far I hope you don't mind if I attempt a summary? For the sake of this post let's assume we're trading daily candles.

1. First of all you identify a trend on the daily by zooming out as far as possible. Let's assume you've got an uptrend for an imaginary case.

2. We've already identified our support and resistance levels and rounded down/up to round numbers as you suggest.

3. So now we're waiting for price to approach our (e.g.) resistance level.

4. At that level it's highly likely that price will retrace downwards, at least for a while and this is our opportunity for a 'discount'. So we measure the retracement using fib levels (still on the daily I think) and draw in an 'inner' trend line.

5. Now we're waiting for that inner trend line to be broken as price re-asserts itself in the direction of the daily trend - this might happen at a lower support level that we've already marked, or perhaps at a fib level of the previous up move. In any case we're also watching round numbers.

6. The up trend line is broken and (e.g.) a bullish engulfing bar forms. This is our signal to trade. We place a buy order (e.g.) 10 pips above the engulfing bar. You haven't mentioned stop losses yet, but lets say for the sake of argument that we place our SL 10 pips below the BEB.

7. My approach would then be to choose a % of my equity and divide that by the distance between the entry and SL to give me my per pip risk.

Questions:

1. If trading daily do you drop down to 4 hour to refine your entry? Likewise if you are trading 4 hour (which I don't) do you drop down to 1 hour to refine your entry? I'm not sure I see the value of doing this with such a long term strategy. It's probably more important at this stage to give the trade enough room to breathe so that we don't get stopped out by 'noise'.

2. If the trend continues in your favour do you add to the position on the next retracement or do you just let the original trade play out?

3. I guess you may be coming to this, but at what point do you move your stop to BE?

4. How many pairs do you trade? I find that trading daily it gives me time to look at quite a few pairs (I have 12). I couldn't hope to do that trading hourly.

5. Trading daily, do you move up to the weekly to confirm the trend, or rely on zooming out as far as possible on the daily?

6. With such long term trades, I presume you have quite a few trades going at any one time?

7. I'm a bit hazy about where the inside bar breakout entry fits into the above method - can you clarify?

Thanks again and sorry for this long post, I just wanted to be certain I'm with you so far! Hopefully it may help others too...

Hi gododdin,

Thanks for your questions... I have put my responses in blue below and hopefully it should help to clear things up a little more:

1. First of all you identify a trend on the daily by zooming out as far as possible. Let's assume you've got an uptrend for an imaginary case. Ok.

2. We've already identified our support and resistance levels and rounded down/up to round numbers as you suggest. Ok.

3. So now we're waiting for price to approach our (e.g.) resistance level. See note below.

4. At that level it's highly likely that price will retrace downwards, at least for a while and this is our opportunity for a 'discount'. So we measure the retracement using fib levels (still on the daily I think) and draw in an 'inner' trend line. Price doesn’t necessarily have to hit this before we look for a retracement. I will look for a retracement any time price has made a new swing high and then starts moving back down (assuming we are trading an uptrend). Also, an inner trendline isn’t absolutely essential – I only draw if it price is clearly respecting an inner trendline whilst it is retracing.

5. Now we're waiting for that inner trend line to be broken as price re-asserts itself in the direction of the daily trend - this might happen at a lower support level that we've already marked, or perhaps at a fib level of the previous up move. In any case we're also watching round numbers. Yes this is one entry method. Again, it doesn’t have to happen like this – if for example a hammer forms or another reliable candlestick pattern occurs at one of our “areas of interest” before the inner trendline has broken I will take this as a signal to trade.

6. The up trend line is broken and (e.g.) a bullish engulfing bar forms. This is our signal to trade. We place a buy order (e.g.) 10 pips above the engulfing bar. You haven't mentioned stop losses yet, but lets say for the sake of argument that we place our SL 10 pips below the BEB. Yes (also see note above!).

7. My approach would then be to choose a % of my equity and divide that by the distance between the entry and SL to give me my per pip risk. Agreed.

Questions:

1. If trading daily do you drop down to 4 hour to refine your entry? Likewise if you are trading 4 hour (which I don't) do you drop down to 1 hour to refine your entry? I'm not sure I see the value of doing this with such a long term strategy. It's probably more important at this stage to give the trade enough room to breathe so that we don't get stopped out by 'noise'. Although I do my trend analysis on the daily timeframe I actually trade both daily and 4 hourly (I wouldn’t drop down to 1 hourly using this method as the signals would not be reliable enough for an extended move). Basically what this means is that when price is trending (let’s keep with our uptrend) on the daily and the 4 hourly I will look at both timeframes for an entry signal… if I get it on the 4 hourly I will trade it or if it is on the daily I will trade it; I’m basically just giving myself a few extra chances at getting in on the trade.
If the H4 charts were moving counter-trend (and respecting an inner trendline when compared to the daily) it would be possible to trade counter-trend on the H4 charts until the daily trend takes back over – let’s keep away from this for the time being though as I will go into counter-trend trading slightly later on.

2. If the trend continues in your favour do you add to the position on the next retracement or do you just let the original trade play out? I will add to the trade; so long as my earlier positions are in profit or at least at breakeven.

3. I guess you may be coming to this, but at what point do you move your stop to BE? This is a tricky one and I will explain it in greater detail in a separate post; only because I will post charts too to make things clearer.

4. How many pairs do you trade? I find that trading daily it gives me time to look at quite a few pairs (I have 12). I couldn't hope to do that trading hourly. I watch about 25 pairs; but I don’t trade them all at the same time. Opportunities will arise at different times so although I watch quite a few pairs I only trade the setups that I see and the setups that I feel are the best looking (i.e. good location, confluence of support/resistance factors, good entry setup etc). I too couldn’t watch all these for hourly setups and for people new to trading I would limit the number to about 5 to 10 pairs until familiar with the strategy. This does mean patience becomes a factor because there is more waiting around for a good setup but patience pays dividends. Watching daily and H4 setups though I can manage – and for those who can’t watch H4, daily will be fine (it will mean less trades and slightly bigger stops but it will also mean less failed trades and better entry signals as daily signals tend to be more reliable).

5. Trading daily, do you move up to the weekly to confirm the trend, or rely on zooming out as far as possible on the daily? Not really. I do use the weekly charts to gauge what I consider to be “key” support and resistance levels – these are the major areas that define trends (I will expand on this in future if anyone wants me to).

6. With such long term trades, I presume you have quite a few trades going at any one time? Yes I will often have quite a few trades running and if we get a good trend running they will remain open for quite some time. I keep an A4 journal at my desk with a record of each entry for each pair so that I can easily monitor there progress without having to scroll through my broker history (which is a pain because it records to many things, like stop loss changes and trades that are cancelled etc).

7. I'm a bit hazy about where the inside bar breakout entry fits into the above method - can you clarify? Just the same as any other candlestick pattern setup… I shall post a chart below of the (H4) USD/CHF in June this year. This was an inside bar setup that I took (although it closed at breakeven… I had to get in again slightly lower) it formed at the 1.1500 S/R level, hit the 50% retracement level and trendline. It’s highlighted in blue and you will see that a sell below this would have been a valid entry back into the trend.

Thanks again and sorry for this long post, I just wanted to be certain I'm with you so far! Hopefully it may help others too...[/quote] That’s quite alright. I welcome questions – this thread is designed to help and if things aren’t clear I have no problem discussing them.

Regards,

Dan

Great response! Many thanks Dan - that's clarified a lot. I shall be following closely as the thread unfolds...

DanUK, nice explantion of your ideas and trading style.

But what happens when something happens while you are asleep ? Since you are working on daily and 4hr time frame?

No problem mate!

One other thing... I didn't really read your question about the weekly charts properly: I do look at weeklies. As I mentioned, I look at them for support and resistance but I do also look at them for guidance and analysis. Although I don't trade off of them so to speak! Hope that makes sense!

Regards,

Dan

Hi cspip,

Well if it's an H4 move that happens whilst I am asleep I miss it. I do have the fortune of being in the UK so I am available to monitor both London and New York sessions whilst I only really miss Asia - I have found that in general most big moves happen in London or New York sessions.

If I see a daily bar forming that I want to trade I will stay up until the bar closes it... place my order (and alerts if necessary) and head off to bed!

But generally speaking if I miss a setup it's no big deal... there will be plenty more around the corner!

Regards,

Dan

Thanks also to bhupinder, ozziedave, face, okehiedon and aus1way for your interest and kind words!

hi Dan
Been reading your thread -long term trend trading makes a lot of sense from reward risk ratio perspective
Do you have a ranking even if it is just mental of some set ups that work better or more consistent than others.
thanks

Hi Dan,

I am having trouble finding tradeable trending pairs on the long term charts at the moment, usdjpy has been trending nicely but has now hit some possible S&R so not really tradable i don't think.
Well i am away next week so hopefully a trend has started to form when i return.
Good trading all

audusd, nzdusd, euraud, eurnzd, audcad in particular, usdsgd. all awaiting suitable retracements.


(high spread),

Great thread you have going here Dan! Keeping things nice & simple which is very refreshing

Kind Regards
Steve