5 tricks of trading on a trend
The author of the article asserts that “for half an hour he will teach you to identify the trend”, as well as the method of making a profit when working with trends.
Determination of the trend.
A trend is the general, dominant direction of the market or asset. If we say that on the daily chart of the trend, EUR / USD is up, then it means that the pair has moved up to the present moment, and that it is more likely to continue moving upwards
Trade in the trend.
Trade on the trend has a long history. Richard Denis, the author of a number of trading strategies in the direction of the trend, was not the inventor of this technique. However, he is the most famous representative of this approach. Famous trader John Henry, guided by the rules of trading on the trend, became so rich that he was able to buy his favorite baseball team Boston Red Sox. I traded according to the rules of the system 5/13/62 18 months, and completed them with a profit.
Do all the rules of work on the trend work? Of course. People earned hundreds of millions of dollars by following these rules. However, are there other rules for following the trend, except the “tortoise” Denis rule and my rules of the EMA crossing system? Of course.
So, you are armed with a set of rules. What next? If the rules of trade in the direction of the trend are so easy to find online, then why do not all traders win? What distinguishes a successful player from a loser?
These tricks are also not a secret.
Everything that you read in this article is probably also available in other sources. Free sources. But here I will try to put together the most important elements of a profitable trading system following the trend. I’m not going to talk about the rules of entry and exit, you can find them in trading systems and forums.
The information I want to share here is just that piece of information that helps me win and distinguishes successful traders from losers.
Trick 1. Check everything thoroughly, only then trade.
Most people completely ignore me when I talk about the need for testing. When I train novice traders, most of the time I help them to properly test the systems. To help traders evaluate how the system works, before I start trading with it on a real account, I developed a lot of tables, techniques, statistical models. Do not even allow yourself to think that you can trade on a system that you have not tested!
What does the test mean? This means that you have developed several simple rules for trading. Then you went back in time (manually or mechanically) and analyzed how these proposed rules worked in the past on hundreds of transactions. Precisely: on hundreds of transactions. Think about this aspect: if you are not sure during the trade, it means that you do not know what the result will be, the deals you conclude. If you doubt the result, you need to do testing, as a result, you will get a better idea of what can happen when concluding a series of transactions on this system.
Trick 2. Think of only one thing.
Learn to focus on one thing. Diversification is not bad for your portfolio. But bad for your career.
Let’s look at a few examples. Think about the best lawyer or doctor that you know. Does he do it alone, or works in a variety of ways. I think you will understand that this person concentrates his attention on only one area of activity: he can be either a cardiologist, a radiologist, or a dentist, but not all of them at the same time.
The best professionals are specialists in their field. Why should you be different from them? Do not you want to put eggs in one basket? If you do not want to dedicate your entire life to forex, you can diversify your assets, invest some of them in stocks, part in a pension fund, part in a bank, and send some to your deposit.
But if you are trying to earn forex by life, you should concentrate on one currency pair, one system and trading plan and one time range for the selected pair. Remember: if you are concentrating only on one pair from the beginning of your career, then maybe the day will come when you will become the leading expert on this pair in the world.
How does the above go with trend trading? This can be said the key to the success of any trader who trades on the trend.
Suppose you read the description of my system 5/13/62 and decided to concentrate on this system. Become obsessed with this system. This means, for example, that you can devote a certain amount of time each day to test 50 historical transactions. And this means that, for starters, you will choose only one currency pair with which you will work, and in addition one time range. And you will become an expert in this system, on this currency pair and in one time range. You will become an expert if, for example, you analyze 1,000 transactions on this system with the same parameters.
If you become an expert, you can trade at a profit.
Trick 3. Different trends on different time bands.
The EUR / USD can go up on the daily chart, however it can go down on a 5-minute chart.
Is this possible in reality? Yes it is possible.
Imagine that on a daily basis, in the long run, the pair moves up. However, in terms of a shorter-term perspective, we can observe a distinct movement in the opposite direction. So remember, if you want to be a trend trader, you need to choose a trend to follow from a variety of time ranges.
If you work outside of trading, you should pay attention to the daily and weekly charts. These trends are usually longer, but they bring a big profit, even sometimes exceeding 1,000 pips.
If you have the opportunity to trade during the day, you may want to work on short-term charts. Recently I tested the new system following the trend, which works even on 1-minute charts.
Trick 4. Trade in the trend requires courage and intelligence.
If you want to be a trend trader, you have to tune in to catching big moves. You can not get involved in pipeding, for example, get 10 pips on each transaction, as in my “Strategy – 10”. You need to receive from 50 to 500 pips, or even more.
To achieve this, you need to prepare psychologically for a long process of waiting for the development of the trend, and then monitoring its development. Most currency traders prefer short-term ranges. However, in these ranges there are sharp fluctuations up and down. For sure, you often had to watch how, after an important economic release, the pair initially moved in the direction you forecast, but then began to move sharply in the opposite direction.
Let’s take as an example a report on Non Farm Payroll. The value came out below the forecast, or, in other words, it turned out to be “bad.” After that, the US dollar suddenly went up! This introduces traders into confusion. In my mailbox, dozens of emails with one question begin to pour down: What should I do? This is an excellent question. And the answer to it is very simple: the trend is a more dominant element in the market than the impact of the news.
Let’s look at the hourly chart of GBP / USD. The trend was downward. After the news was published on the chart, a spike formed upward. But soon the trend continued.
As can be seen on the graph, a small “spike” upwards was just an insignificant episode. This was a slight increase on the background of chaotic sentiment in the market after the publication of the report on employment in the US. Thus, the news does not always affect the trend. Although the opposite is also possible. An important economic indicator can give a signal to reverse the trend. But in this case nothing like this happened. The previous trend continued, i.e. we can with full confidence trade in the direction of the dominant trend.
Another important element apart from courage is the so-called “smart money”, This means that you should not risk large sums for one transaction. You can be thrown out of the trend, as in the example above, incur a large temporary loss before continuing in the direction of the trend.
A couple can go against you, and you should have the courage not only to keep the position open, but also you need to have a sufficient deposit amount to withstand temporary losses.
Surely you had the case that you made a potentially lucrative deal, but could not keep the position open, as the losses became very large. Those. you were withdrawn from the market on the foot just before the start of a strong move. To resist such moments, reduce the size of the position, if you want to saddle the trend.
Trick 5. TV and people usually make mistakes.
Be careful when using news information. Especially when commentators on CNBC and Bloomberg say that “the trend for the dollar is definitely upward” or “traders scale their long positions on the dollar, as the trend is ready to turn down.” These people do not trade your account! They do not know at what time range you are trading, and what system you are following.
Over the past 4 years I have worked with more than 1,060 traders from all over the world. Most of them often missed very profitable deals, because they were frightened by comments on TV, on the Internet or simply by “kind” friends.
I do not advise you not to watch business news, but I just recommend that you be more careful when analyzing information obtained from external sources, especially if it can affect your trading plan.
You can find many rules for entering and exiting the network. The rules of following a trend are easy to use. The hardest thing is to do correctly seemingly insignificant things – which many traders do not even pay attention to. It seems to me that everything lies in the discipline: during testing, trade and money management. This is the secret of success in trading.