Simple Trend Trade

[Mysticforex 13]

We have all heard "The Trend is Your Friend". But, have you ever wondered how and when to jump in? Here's a simple way.

 

For this example I am using Aud/USD because it is clearly in a down trend.

1 hour time frame. 200 sma for visual reference, if price is below the 200 sma we are trending down. Stochastic 30, 10, 10. Above 80 on the Stoch is overbought, below 20 is oversold. On MT4 I had to superimpose the 80/20 lines.

 

In a downtrend, we wait for the Stoch to become overbought. We enter on a nice solid bearish candle. Not a Doji, Not a Morning Star or a Ringo Star.

 

S/l will go just above the most recent high. TP will be 10 pips above the next support area. In this case I had to move to a Daily to find support, It is the red horizontel line on the chart @9873. So we will round up to 9885. The red vertical line is where we entered.

If, as is the case here, the 200 sma moves down below your S/L, adjust your S.L to the 200.

 

In effect what we are doing is shorting a bounce.

 

Never risk more than .5% R?R should always be at least 1:1 Backtest before trading "Live", people lose money trading Forex.

[Mysticforex 13]

TP hit @9873........

[wrbtrader 10]

Hi Mysticforex,

 

Thanks for the charts.

 

I"m curious if you were aware of any fundamental reasons, economic reasons for the Forex AUDUSD currency down trend when you were making your technical analysis regardless if those reasons had or had no impact on your technical analysis. ???

[Mysticforex 13]

Hi Mysticforex,

 

Thanks for the charts.

 

I"m curious if you were aware of any fundamental reasons, economic reasons for the Forex AUDUSD currency down trend when you were making your technical analysis regardless if those reasons had or had no impact on your technical analysis. ???

 

My main technical reason for looking at A/U was the fact that it was overbought by 2 or 3 standard deviations, But that's technical and beyond the scope of this thread.

 

Fundamentally the Chinese economy is slowing a bit, or, at least feared to be slowing. Oz is a major exporter to China. Also, Euro weakness against the Greenback usually translates into Aussie weakness against the $$$.

 

 

Here is a chart and what I posted on AUD back on 4/10/12

 

http://www.traderslaboratory.com/forums/forex-trading-laboratory/11460-audusd-11.html

Edited May 16, 2012 by Mysticforex

[Mysticforex 13]

Ok. GBP/CHF has caught my eye today...

 

I mentioned in another thread I would like to see G/C close above 15000, and buy on a retrace and shoot for 15100. I may have my chance.

 

On the 1 hour chart below we have price above the 200 sma, trending up. The stoch is oversold, below 20. So on the stoch coming out of oversold, and a nice bullish candle I would like to buy this pair. TP @15090. If the most recent low remains intact we would have a pretty tight stop. 14970. We will have to wait and see if oppurtunity presents itself.

[Mysticforex 13]

Will probably not open today. Keeping it on my watch list.

[Mysticforex 13]

GBP/CHF... price is now below 200 sma so the setup is void. I usually don't trade on Friday so I'll find something and post Mon, London.

[Obsidian 10]

If gbp was not so weak lately, gbp/chf had a nice potential for 1.56..

[koyasan 10]

Mysticforex.....totally agree with your logic. I mostly trade the AUD/USD Futures on a 30min timeframe and the high probability trades are always selling into supply/resistance in a downtrend and buying support/demand in an uptrend. Sounds easy but as always the task is to correctly identify trend as well as support/resistance. Personally I use linear regression to define slope and TSI to identify overbought/oversold conditions. Nothing magical about what I use, it's the logic behind it which is important. I also accept that all my indicators will work well except for that last time at the turn of the trend but even then a bit of divergence can also serve to exercise caution. In the business of keeping trading as simple as possible I would say that the majority of my focus is trying to accurately identify trend.

[BlueHorseshoe 10]

Identifying trends and entering on pullbacks is a sound methodology and works well in most markets (especially the stock indices) - I never understand why more people don't trade like this.

 

As others have pointed out, correctly determining both the trend and an overbought/oversold condition are the two main difficulties here (they're also the only real input variables, which is good because it reduces the risk of curve-fitting).

 

For currencies the trend filter (SMA) needs to be appropriately selected - because these markets often produce strong trending moves, either a very short (eg 30) sma or a longer (eg 200 as suggested by MysticForex) SMA works well. In the indices you'd want something inbetween (eg 80sma). Also, using the directional slope of the SMA often produces much better results than a price/sma relative measure.

 

For identifying short term overbought/oversold conditions nothing but the most recent past matters - shorten the lookback for oscillators such as the stochastics, rsi, cci, to between 2-5 periods. There is absolutely no edge in a 14-period stochastic. If a 2-period stochastic sounds an unlikely proposition then go to the data and test what I'm saying in the market you want to trade.

 

Hope that helps.

 

BlueHorseshoe

[MightyMouse 12]

The goal is to find people who are willing to pay you.

 

Taking a trade in the direction of the trend isn't going to help if there aren't people who are willing to pay you in the timeframe you are trading. Given a timeframe, it is frequently a better strategy to get paid by the people who are trying to take a trade in the direction of the trend. Hence, you can make money taking trades trading against the trend.

 

Do not be mistaken by what it means to trade against the trend. It is not the same as countertrend trading.

[BlueHorseshoe 10]

The goal is to find people who are willing to pay you.

 

Taking a trade in the direction of the trend isn't going to help if there aren't people who are willing to pay you in the timeframe you are trading. Given a timeframe, it is frequently a better strategy to get paid by the people who are trying to take a trade in the direction of the trend. Hence, you can make money taking trades trading against the trend.

 

Do not be mistaken by what it means to trade against the trend. It is not the same as countertrend trading.

 

I think what you describe is pretty much what MysticForex's method aims to exploit, isn't it?

 

The concept would be to buy a short term downtrend/breakdown, buying a position from those who are shorting this short term downtrend, in favour of the longer term uptrend. This means trading contrary to those with short term outlook (typically retail traders and those who are easily shaken out of positions) and aligning oneself with heavily capitalised institutions who have moved the market to where it is by accumulating inventory (positions which they will typically add to as the short-term outlook traders are shorting).

 

Buying pullbacks in trends works.

 

BlueHorseshoe

[MightyMouse 12]

I think what you describe is pretty much what MysticForex's method aims to exploit, isn't it?

 

The concept would be to buy a short term downtrend/breakdown, buying a position from those who are shorting this short term downtrend, in favour of the longer term uptrend. This means trading contrary to those with short term outlook (typically retail traders and those who are easily shaken out of positions) and aligning oneself with heavily capitalised institutions who have moved the market to where it is by accumulating inventory (positions which they will typically add to as the short-term outlook traders are shorting).

 

Buying pullbacks in trends works.

 

BlueHorseshoe

 

I am describing selling at support in an uptrend and taking money from weak longs who enter and begin scaling out immediately or have stops that are very close to their entry. Or, buying at resistance in a down trend when I suspect that there are weak shorts who have entered and are trying to call a short term top.

 

My definition of a weak trader has nothing to do with a traders ability to make consistent profits. it has to do with his patience or conviction to stay in a trade. I, in fact, fit neatly into my definition of a weak trader when I day trade. As such, there is nothing wrong with being weak.

[BlueHorseshoe 10]

I am describing selling at support in an uptrend and taking money from weak longs who enter and begin scaling out immediately or have stops that are very close to their entry. Or, buying at resistance in a down trend when I suspect that there are weak shorts who have entered and are trying to call a short term top.

 

My definition of a weak trader has nothing to do with a traders ability to make consistent profits. it has to do with his patience or conviction to stay in a trade. I, in fact, fit neatly into my definition of a weak trader when I day trade. As such, there is nothing wrong with being weak.

 

In that case I had misunderstood you - I think that you would in fact be taking the other side of trades made by a system such as the one MysticForex describes!

 

When you enter short at support in an uptrend, are you not concerned that, although the weak longs may be forced out (I will, after a contract has moved a few thousand dollars against me), the stronger hands who are controlling the long term state of the market will be eager to continue accumulating and pushing the market higher? This would theoretically put you on the other side of not only weak traders but also massively capitalised institutions who, regrettably, we have to consider to be 'strong hands'.

 

Thanks,

 

BlueHorseshoe

[MightyMouse 12]

In that case I had misunderstood you - I think that you would in fact be taking the other side of trades made by a system such as the one MysticForex describes!

 

When you enter short at support in an uptrend, are you not concerned that, although the weak longs may be forced out (I will, after a contract has moved a few thousand dollars against me), the stronger hands who are controlling the long term state of the market will be eager to continue accumulating and pushing the market higher? This would theoretically put you on the other side of not only weak traders but also massively capitalised institutions who, regrettably, we have to consider to be 'strong hands'.

 

Thanks,

 

BlueHorseshoe

 

I am concerned about anyone who is opposite me. The highly capitalzed long term traders are often pushing down to steal the positions from the weak longs. A weak long frequently becomes supply pretty quickly. A long term trader would rather remove a weak long trader at lower prices than to start marking up prices and have the weak long puke his position at higher prices.

[Mysticforex 13]

If gbp was not so weak lately, gbp/chf had a nice potential for 1.56..

 

Yes. They have in effect pegged the chf to the euro. The euro weakness the past few days has had it's effect on the swissy.

[Mysticforex 13]

Some good posts here. Please contribute. If anyone has something they are watching that falls into what we are talking about here, ie: selling/buying on bounces/dips. buying/selling @ support/resistance, feel free to post it.

 

 

Today EUR/USD has caught my eye. 1 HR chart. Stoch overbought. Looks like price is bouncing off the 200 sma. OR... it could break through. If that is the case I am thinking the stoch will STAY overbought and we would not have entered. If the trade does open I see the next area of support ( recent ) @ 12650. We will have to see where it opens to determine S/L.

 

If we do break to the upside we could see 12860.

[Mysticforex 13]

I see that our fellow member is short already.

 

http://www.traderslaboratory.com/forums/forex-trading-laboratory/13098-eurusd-master-live-trading-5.html

[Mysticforex 13]

The stoch has finally come down out of overbought, But, I don't like the look of the candle...

Remember I said a NICE bearish candle. So, I stand aside on this one.

[Mysticforex 13]

I don't follow a lot of pairs, 5 - 7 at most. None of them are in an uptrend, mostly downtrend. And I think we will see mostly short covering for the next few days.

 

In any event we do have a setup on the A/U 1 HR.

[Mysticforex 13]

Looks like this will open soon. I intentionally did not post TP and S/L.

Where would You put them?

[Mysticforex 13]

We also have a pending buy setup forming on USD/CAD.

Though with Home Sales out in 20 minutes I might be inclined to stand aside if it opens during the news candle.

[Mysticforex 13]

Looks like this will open soon. I intentionally did not post TP and S/L.

Where would You put them?

 

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[Mysticforex 13]

We also have a pending buy setup forming on USD/CAD.

Though with Home Sales out in 20 minutes I might be inclined to stand aside if it opens during the news candle.

 

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[Mysticforex 13]

Ok, we are back to GBP/CHF.

 

Price is close too, but below the 200 SMA, the stoch is overbought.

If the trade opens with price below the 200 sma, S/L will go above the 200SMA.

TP will be the next area of support @ 14850 making for very nice R/R.