Trend Following - A Complete Guide

Lol, that post tickled me. Yes I understand what you are saying and it is true it is nice to have fundamentals on your side, although sometimes you need to let the charts do the talking and follow accordingly. In such cases you only wait for the perfect setups. Very much like I was saying with the USD/JPY, I am hesitant to short that pair due to the fact that I believe the longer term fundamentals point to Dollar strength.

Yup nothing wrong with that setup apart from the fundamentals.

For me it seems as though this pair is consolidating now. It failed to make a new low on the last swing down nd now looks as though it will fail to make a new high. I will now be extra careful before entering in any direction on the USD/JPY until the range is broken.

If however we get a break to the upside I will be all over it like a rash :-)

I identified almost identical setups on a series of pound crosses - GBP/JPY, GBP/CHF, GBP/AUD & GBP/NZD. All of these pairs had been sold quite aggressively through the end of 2010 only to stage a slight pull back over the first few days of 2011.


They are all now trading up to previous support levels which as we know could now act as resistance. These levels happen to fall near the 50% fib retracement on all of them as well (spooky huh).


So what does this all mean... well it means that should we get the right price actions (1-2-3 reversal) we will be entering on the short side of one of these pairs. The reason for entering only one trade is that these pairs are highly correlated and hence if we enter all of them we may as well load up on one as they will more than likely all move the same way in the end anyway. Having said that if we were to enter all of these trades we would strip our risk right back to 1/4 of our normal exposure allowing us to take each setup.


Now you might be wondering which one would be the correct one to enter and the answer is we don't know, we don't try to predict what happens in the market we simply react to it. However to give you a better answer, one that you can work with and learn from we would have to present two options.


The first is to enter the very first set up that presents itself as the first is usually the most powerful with the others tagging along behind.


The second option is to perform some paralell and inverse analysis to which pair presents the strongest opportunity. We would take a look at the Yen, the Franc, the Aussie and the Kiwi pairs to try to establish which of the four are strongest across the board.


From looking at the charts you would have to say that there is quite a strong case for the Aussie in this scenario. This pair is up against all of the above so logically speaking if we going to bet on strength the Aussie is probably the better bet to go with.

EUR/AUD also looks like a good short on the 4 hour. Lets see if price action agrees with us.

Yes, nice setup.

Thanks!

Hi Micardo,

really great strategy. I appreciate your information very much.

One question: On what timeframe do you look for the 1-2-3 reversal pattern? On H1?

Thank you.

Hi Micardo,


thanks for your replies ,

can i just confirm the reason for trading the GBPCHF pair, the daily is in a down trend with the last swing up being a retracement against the current downtrend and you have dropped down to the 4 hour to take a closer look at the retracement to find an entry.


thanks

pipfarm

Hi Micardo
When you talk about taking a 123 reversal are you talking about entering below( in this case we are talking about going short) the #2 point or the zero point on your fib retrace as you have it drawn on the charts you just posted or are you looking at a lower TF to make this entry as Olarion1975 just asked .

Thanks

PS Thanks for the input on the USDJPY. I was staring at the chart so hard for it to meet the other criteria I completely overlooked that it never made a Lower Low. Wont overlook that again, added to the checklist

PPS You already answered my question on Page 1, Duh just needed to re read. Thanks Again for an informative thread Micardo

Just to update you this set up is now void. The pair made a new high thus invalidating the entry criteria.

Hi Everyone,

Sorry I can't stop long but I thought I would give you a heads up on some setups I am looking at.

EUR/AUD - Short
AUD/USD - Long
EUR/CHF - Short
EUR/JPY - Short
GBP/JPY - Short
USD/CHF - Short
GBP/CHF - Short
NZD/USD - Long
EUR/CAD - Short
GBP/AUD - Short
AUD/NZD - Long
NZD/CHF - Short
EUR/NZD - Short
GBP/NZD - Short

Please bare in mind that these are not all 4 hour set ups, some are Daily set ups. Also I will not be taking all of these, at the time of the entry I will assess which has most momentum etc.

Fundamentally speaking I want to short the Euro but will wait until the Portuguese bond auction outcome has been announced as I think the short term direction will be taken from here.

I will check in later.

Thanks

Micardo

Thank you all for sharing your thoughts and methods! Just finished reading it through. Terrific information! During my 1.5 yrs trading experience I found the simplest works the best and this is what you talk about here

One thing what I found interestingly annoying is that brokers may calculate daily and 4 hour candles using different timezones. I trialed a few and most of them use GMT however for the beginners it is wise to know that this could cause distortions and false signals. Some US brokers may use EST but I have seen a broker using some irrational Eastern Europen timezone to calculate longer term candles. Using GMT makes sense and it should be the normal I think.

Just thought it's worth pointing out because mainly 4hr timeframes mentioned here...

What do you make of the EURO surging up as of late? I'm scared to get in on it. Feels too unstable.

I know that USD - JPY has been in a sort of a range for some time now, but I think it is in a DOWN TREND part of that range now.

In fact, every chart, indicator, system and instinct I have tells me that.... there, that should HEX this trade !!!

What does everyone else think.....its been ranging for a while but it seems to have hit major resistance at 1.5868 and there is a possible shooting start forming on the 4h chart.

I'm looking toi short at completion of that candle with a take profit at s1 or s2

feedback would be great

I'm short on the USD-JPY at 82.534....trade has turned around on me a bit!!!

AUDUSD


A picture says a thousand words


pipfarm

So, it's your fault

Actually, I did pick the LOW, too bad I have a short bias....... I'm sure the TREND will resume next week........

The Euro has been surging on the back of "positive" bond auctions. Every body thought that Portugal would have a very bad bond auction, however it wasn't as bad as people thought, there was a good bid to cover ration and yields were not quite as high as people feared.

So at the moment the Euro seems safe, even though the ECB have been buying up debt as well which sort of makes this a little false but hey ho... thats the market.

I hope that sheds some light.

At the moment I am staying out of the Euro pairs until the direction is completely established.

Hi Macardo

if trading trends off a 240min chart
how do you deal with weekends, close open positions, leave open, treat each position individually?

thanks

Hi,

I would really caution everyone against trying to short this pair at the moment. For me it isn't really trending, it is more consolidating than anything.

Plus the fundamentals for Japan don't look great. If anything I am looking for this to break to the upside. 84.40 seems to be a real key level...