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Trend Following - A Complete Guide

  • #181
  • Jan 7, 2011 1:05am Jan 7, 2011 1:05am
Made a nice 400 pips shorting EUR/USD and EUR/JPY on Tuesday, got out of it just a few hours ago. I've increased my demo account by 10% this week risking just 2% each trade. Couldn't have done it without this thread, thanks!
  • #182
  • Jan 7, 2011 2:44am Jan 7, 2011 2:44am
Some information you may find usefull on timeframes.


Every timeframe can contain the following one or all three may be present at any one time.

1. The long term trend.
2. The higher timeframe trend.
3. The current timeframe trend.


Bear in mind that every timeframe contains the smaller components that go to make up the larger timeframes.


pipfarm
Follow The Markets Structure - Patience and Discipline
  • #183
  • Jan 7, 2011 3:04am Jan 7, 2011 3:04am
Hi Brenzaj42,

Would you share with us some more regarding the way you do the parallel and inverse analysis ? Is it a spot analysis of the current market situation or maybe you analyze the currency strength over a given period of time ?

How does the outcome influence your entries ?

Thanks !
"A goal without a plan is just a wish" - Antoine de Saint-Exupery
  • #184
  • Jan 7, 2011 6:44am Jan 7, 2011 6:44am
Quoting pipfarm
Some information you may find usefull on timeframes.


Every timeframe can contain the following one or all three may be present at any one time.

1. The long term trend.
2. The higher timeframe trend.
3. The current timeframe trend.


Bear in mind that every timeframe contains the smaller components that go to make up the larger timeframes.


pipfarm


Take a look at gbpusd

Looking at the weekly we can see its trend is down , that is the last series of weekly bars making lower highs/lower lows.

Looking at the daily from the top of the weekly down trend, we can see that there are 3 sets of lower highs/lower lows and 2 higher highs/higher lows.

Each set of daily lower highs/lower lows and higher lows/higher highs is the daily trend and the swings combine to make the weekly trend.

As you can see each timeframe can have its own trend and also the components of higher timeframe trends.

pipfarm
Follow The Markets Structure - Patience and Discipline
  • #185
  • Jan 7, 2011 8:12am Jan 7, 2011 8:12am
I am not sure how else to answer this but parallel and inverse analysis for me is confirmation to enter a trade. When I analyse any pair, at the time of I analyse the market, I will check other pairs that are relevant to both sides of the currency pair. I am basically trading pullbacks on the weekly and entering on the daily so I will check those time frames for other pairs to see if they are doing the same thing. If they are, good news, if not I may not enter the trade. That does not mean I would never enter that trade, I just weigh my risk accordingly. It is always possible for a "rogue" pair to do its own thing because there are 2 sides to the pair and the difference between those two ultimately is what makes the pair move. Again, when I analyse the market every night, I already have an idea of what is going on before I sit down to the computer. I hope I am answering the question in enough detail for you. I have been doing this for so long, sometimes I have a hard time putting it into words instead of just doing it. Let me know.



Quoting trzcinek
Hi Brenzaj42,

Would you share with us some more regarding the way you do the parallel and inverse analysis ? Is it a spot analysis of the current market situation or maybe you analyze the currency strength over a given period of time ?

How does the outcome influence your entries ?

Thanks !
  • #186
  • Jan 7, 2011 9:37am Jan 7, 2011 9:37am
The answer is very clear. Thanks Brenzaj. The only thing is that the strength of currency mesured at the end of the day does not mean the currency is goign to behave similar way the day after :-/ I do the P&I analysis at the close of the daily i.e. at 11PM (GMT+1) and very often the strength of the currency changes when the new bar appears. It makes the P&I information not very reliable for the first push.

Maybe it is not a good idea to do that on the bar close. What do you think ?

I really like the way you trade. So please, keep posting, i'm sure we will learn a lot from You !
"A goal without a plan is just a wish" - Antoine de Saint-Exupery
  • #187
  • Jan 7, 2011 9:48am Jan 7, 2011 9:48am
I understand currency strength and weakness varies session to session and day to day. I am not looking at short term strength or weakness but rather the bigger picture. Again I am looking at weekly and daily charts. I will time my entires when the pair goes my way usually in the main trading session. The pair is already trending so I have that on my side as well.



Quoting trzcinek
The answer is very clear. Thanks Brenzaj. The only thing is that the strength of currency mesured at the end of the day does not mean the currency is goign to behave similar way the day after :-/ I do the P&I analysis at the close of the daily i.e. at 11PM (GMT+1) and very often the strength of the currency changes when the new bar appears. It makes the P&I information not very reliable for the first push.

Maybe it is not a good idea to do that on the bar close. What do you think ?

I really like the way you trade. So please, keep posting,...
  • #188
  • Jan 7, 2011 10:42pm Jan 7, 2011 10:42pm
just saying hello, mr micardo.

Will be stopping by more often.

Nice thread. still reading it from the begining.
  • #189
  • Jan 7, 2011 11:28pm Jan 7, 2011 11:28pm
Quoting vijidas
In my personal opinion Trend trading is simple and easy to learn but it is not easy to trade. See attached chart:

what would you say is the current trend?

would you say it is downtrend? it could be uptrend and the current down move could be just a retrace of a big uptrend.

it is currently in 300 pip range. how will you trade it?

there are lots of factors to consider.

I hope micardo could give examples to help us understand.

so how would i trade the attached chart? I would wait for price to break out of the 300 pip range. If i'm a range trader...

THE ANSWER IS VERY SIMPLE: if you are not sure, skip it to the ones that you are sure of. We have over 30 or so pairs/crosses. There is plenty to choose from.

This is not an exam. You can skip which ones you dislike.
  • #190
  • Jan 8, 2011 12:03am Jan 8, 2011 12:03am
Do you trail? At what point do you move stops to BE?
  • #191
  • Jan 8, 2011 7:29am Jan 8, 2011 7:29am
I personally do not move my stops.



Quoting dddd
Do you trail? At what point do you move stops to BE?
  • #192
  • Jan 8, 2011 11:36am Jan 8, 2011 11:36am
[quote=brenzaj42;4296344]I understand currency strength and weakness varies session to session and day to day.

Hi Micardo & Brenzaj42

Thanks for this thread - with one exception, it is so refreshing to read through a thread without the noise of egos! Hope it stays that way. The best brainstorming comes from sessions where people build on the ideas adding whatever positive thoughts come. All negative comment is banned.

In that spirit, your idea of blacking out the candles and just looking at the indicator is inspired: have just been taking a look at the weekly charts and like brenzaj says, it is immediately clear whether it is worth looking any further. I think this will be good with other indicators too to identify patterns. Do you think divergence can help to confirm entry opportunities?

I might have missed the point re currency strength and weakness but do you think using mataf.net's new currency index can help:

http://www.mataf.net/en/forex-charts/c-index
  • #193
  • Jan 8, 2011 12:29pm Jan 8, 2011 12:29pm
Everyone should keep track of the interest rates of the various major currencies. They change sometimes when the central banks want to either stimulate the economy, or fight inflation.
AUD 4.75%
NZD 3.00%
EUR 1.00%
GBP .50%
CAD 1.00%
USD .25%
CHF .25%
JPY .10%
This does not mean we as retail traders can get these same rates; but our rates are at least relative to the above list. Currently my Bank of America savings account pays me .01% interest. (Bank of America is a retail bank, The US central bank is called the Federal Reserve, or Fed, for short)
As you can see, the ideal carry trade is to buy AUD/JPY or AUD/USD; in which case my broker will pay me one pip per day in swap for each micro lot (.01) I hold. Because I have 50:1 leverage, my interest rate on my AUD/USD long trades is larger than 4.75%; with 100:1 leverage the interest rate would be even higher.
If I were a banker, I could buy a million dollars worth of AUD/USD and hold it for year. At the end of the year, I would collect 4.75% interest on my Audies and pay .25% interest on the Yen I borrowed. That would be $47,500 minus $2,500 equals $45,000 profit. Of course the down side is, if I bought at parity $1=$1; and the price dropped back down to .60000, I would loose $400,000. On the other hand, if I had bought it back in 2008 when it sold for .6000, then today I would have gained $400,000 plus interest.
Now you can see why I say the Carry Trade drives the Forex Market. All of these other news stories about Non-Farm Payroll, etc. affect the expectations of interest rate changes; and therefore drive the price of currencies up and down.
By looking at the Carry Trade on the monthly chart back in July 1,2008 thru Oct. 1,2008, AUD/USD dropped about 4,000 pips in 3 month's time. After bottoming out, and starting back up the following year, the pair rose about 3,000 pips in another 3 month's time. An alert trend trader could have made a fortune. It appears from that chart, the Carry Trade unwinds when the economy crashes, and then rewinds when the economy starts to recover. So the Carry Trade is driven by fear and greed.
Last week the Carry Trade began to unwind; hopefully just a pull back.
Happy trading to everyone next week. http://cdn.forexfactory.com/images/icons/icon7.gif
  • #194
  • Jan 8, 2011 4:54pm Jan 8, 2011 4:54pm
Quoting ForexSimVids
http://www.youtube.com/watch?v=i3y-VKzpD2o


This is my attempt at marking the levels Micardo mentions in the posts above.

Here's the screen:
Hi ForexSim,

Thanks for the video update. You pretty much have it bang on.

I know some of the levels look a little vague and a few are more ranges but maybe I can give a little more insight. I am always looking at levels or ranges where price has reacted in the past. The reaction needs to be quite strong so there needs to be a decent bounce off of these levels in the past for me to consider them. Thus if/when price gets to these levels again, I watch for the price action and if I get the right price action I enter. The price action basically confirms that the rest of the market are looking at the same level.

If I do not get the requires price action I leave it and wait for the next level to go through the process again.

But are getting the right idea and identifying the levels that I am looking at.

Thanks

Micardo
  • #195
  • Jan 8, 2011 4:55pm Jan 8, 2011 4:55pm
Quoting jacksy
Made a nice 400 pips shorting EUR/USD and EUR/JPY on Tuesday, got out of it just a few hours ago. I've increased my demo account by 10% this week risking just 2% each trade. Couldn't have done it without this thread, thanks!

Congratulations, its nice to see it is benefitting you! keep up the good work.
  • #196
  • Jan 8, 2011 4:57pm Jan 8, 2011 4:57pm
Quoting dddd
just saying hello, mr micardo.

Will be stopping by more often.

Nice thread. still reading it from the begining.
Hi dddd,

welcome and I hope you continue to enjoy the content.

Thanks

Micardo
  • #197
  • Jan 8, 2011 4:59pm Jan 8, 2011 4:59pm
Quoting dddd
Do you trail? At what point do you move stops to BE?
Hi dddd,

Yes I do trail my stops and indeed add to positions. I tend to move my stop when a new level is broken and I add a new position.

Having said that, if I using this approach to do some swing trading, I wouldn't move my stop I would stay in until my profit target was reached or my stop was hit.

I hope that helps.

Thanks

Micardo
  • #198
  • Jan 8, 2011 5:06pm Jan 8, 2011 5:06pm
Quoting jerrycollie
Everyone should keep track of the interest rates of the various major currencies. They change sometimes when the central banks want to either stimulate the economy, or fight inflation.
AUD...
Nice post and a good point. The carry trade is the trend trade of all trend trades. Just look at the Yen pairs during the time prior to the crisis. They got hammered as Japan had the lowest rate and hence acted as the funding currency. However you need to be careful as when the carry trades get unwound, it happens quite violently.

But yes the interest rates differential as well as the expectation of the differentials to come is quite a big driver.

All of the economic indicators released each month help the central banks to build their pictures on the economy and hence help them make their decisions as to where the rates will go.

Finally regarding economic indicators, for news traders they look for the surprises from the expectation to the actual. But for trend traders the trends is more important, so for examply are the NFP numbers getting better or worse over time, same for retail sales, same for inflation reports, do you see what I mean?
  • #199
  • Jan 9, 2011 12:03am Jan 9, 2011 12:03am
Quoting Micardo
Hi ForexSim,

Thanks for the video update. You pretty much have it bang on.

...

If I do not get the requires price action I leave it and wait for the next level to go through the process again.

But are getting the right idea and identifying the levels that I am looking at.

Thanks

Micardo
Hi Micardo, thanks.

In this video reply I've tried to identify the price action on the pairs discussed earlier. I've tried to use your guidelines form page 2 of this thread.

Inserted Video


And these are the screens:
Attached Image(s) (click to enlarge)
Click to Enlarge Name: micardo trend following 002.png Size: 110 KB
Click to Enlarge Name: micardo trend following 003.png Size: 87 KB
  • #200
  • Edited 1:20pm Jan 9, 2011 1:10pm | Edited 1:20pm
Hi all,


Continuing from my previous post i was hoping for some reaction good or bad .

I propose that each timeframe can contain the components of a higher timeframe trends and we must be aware of this when trading.


ie. The timeframe you are viewing can have its own trend, it can also contain the higher timeframe trend and the longer term trend.


The reason for this is that the timeframe you are viewing will contain the smaller components that go to make up the higher timeframes.

As an example in the first chart i have posted of the EURAUD (15m) you can see the primary trend which is the longer term trend or in this case the 4 hour trend and i have posted the 4 hour chart to show you.

If you join up the price swings in between the red lines this will give you the next higher degree trend or 60 minute in this case and the current timeframe trend lays within those swings.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: primary trend.gif Size: 14 KB
Click to Enlarge Name: 4 hour trend.gif Size: 15 KB
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