Trend Trader

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The Trend Trading Blog

Trading Trends Across Stocks, Forex Commodities

What is Trend Trading?

Trend trading the financial markets is no longer only for the Wall Street big shots or the highly educated bankers in Canary Wharf. These days with the internet and the prevalence of online brokers providing access to the markets, barriers to entry are so much lower. No longer are the days of manic trading pits and having to pick up the phone to take a trade. Now, the time between first hearing about trading to placing your first trade can be a matter of hours.

This is a double edged sword, because on the one hand it opens up so much opportunity. On the other it presents a danger of financial ruin to the ignorant. (read my blog post on why so many retail traders fail). Day trading and scalping are popular ways to trade the markets from home. However the success rate is astonishingly low. Day trading and scalping is when a trader is taking multiple positions per day on intraday time frames. These methods are time consuming, stressful and discouragingly difficult to find success.

In this article I’ll explain how long term trend trading works and its advantages and challenges compared to other forms of trading.

How Does Trend Trading Work?

Rather than being in and out of multiple positions per day, I aim to be holding the same trades for months at a time. Or rather as long as what I’m trading is in trend. If an asset is not trending I will not be trading it.

To get technical, a bullish trend is defined by price action making higher highs and higher lows. The higher highs are formed when price moves up. The higher lows are formed when price then pulls back, usually to some form of support or resistance. This would be followed by another leg up to make a new higher high. The opposite is true for a bearish trend.

The aim of trend trading is to let a trend establish itself, then enter towards the beginning or middle of the trend. Once you’ve entered your first trade you’ll keep a trailing stop loss that will follow price as it makes new higher highs and higher lows. Your stop loss will be strategically placed and wide enough to allow these higher lows to form and not stop you out.

Of course, assuming a bullish trend, the aim is for your exit price to be higher than your entry price, thus profiting from the price difference.

NVDA increased over 700% from when it first appeared on my watchlist. You don’t need to capture this whole move to make significant returns to your trading account.

Boeing was another very strong trend in 2020. After appearing on my watchlist, Boeing went on to trend for another 1.5 years, returning 250%.

It was after backtesting some of these trends that really gave me that ‘aha’ moment. I was hooked on trend trading from there on.

Higher Time Frames

With day trading you’d likely be trading from intraday time frames. Often 15, 30 or 60 minute charts. Sometimes lower with scalping. However, given the longer term nature of trend trading higher time frames are always used. I would start my analysis on the monthly time frame. The monthly chart will show me how the asset i’m analysing has trended in the past and if it’s currently trending. The monthly will also show me any significant support or resistance levels to be aware of.

Next I’ll look at the weekly time frame. The weekly will show me the trading bias and a clearer picture of the current trend. Once satisfied with the weekly I’ll move down to the daily time frame which will confirm the trading bias and give me a clearer picture of the state of price action. It is the daily time frame that I take trades from. With trend trading there is no need to look at any time frame lower than the daily.

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Below is an example of my multiple time frame charting setup. I use TradingView for my charting.

Time Efficiency

The advantage of using higher time frames and trading long term is the time it takes to complete your trading routine. With day trading and scalping you’ll likely be staring at price charts for several hours everyday. Now if this is something you want from a trading career then great. However if you don’t have the funds to make a living from trading at the start and therefore have a full time job, this just isn’t realistic.

With trend trading I base all my decisions after the trading session has closed (or the next morning). Therefore my trading and portfolio management usually takes me less than 20 minutes per day Monday-Friday. I then spend around 2 hours on the weekend doing my in depth analysis ready for the week ahead. This means that my trading work week is less than 4 hours. Not only is this feasible for anyone working full time, but it brings a sense of time freedom if you reach a point when your trend trading can replace your 9-5 job.

Which Markets Are Best to Trend Trade?

Trend trading strategies can be applied to any market that is liquid and that trends. The majority of traders will encourage you to only trade a handful of currency pairs, like the majors. Although doing this is more appropriate to day traders. With trend trading only trading a few instruments will massively limit your potential.

Not all markets are trending at the same time. But my aim is to follow the institutional money and trends from market to market. The main market classes I trade are US and UK stocks, Forex and Commodities. All these asset classes combined gives thousands of potential instruments to trade.

To combat this quantity of candidates I use scanners and charting software to analyse which are the best of the best opportunities at any one time. Doing this I can objectively decide which trades to take within my limited risk tolerance. Taking the best trade setups will stack the odds of a long and lucrative trend in my favour.

Compounding

When I first discovered the concept of trend trading I wondered how you could actually make decent returns trading from the higher time frames. I thought it was too slow and unprofitable. But how wrong I was.

Once I understood trend trading risk management it began to make sense. As a trend trader you’ll likely have a risk allocation of about 10-16% of your trading account. This is personal preference and will depend on your own risk adversity and account size. Now of course this 10-16% isn’t all on one trade. This is diversified across a number of trades on different trends at 1 or 2% each. So If you have a couple of strong trends performing well for months at a time the returns will come. However I still wasn’t sold on the idea until I was taught compounding.

Compounding or scaling in is when you enter initial trades on the best setups. Then as the strong performers continue to make new higher highs and higher lows you continue to add positions to these trends. As your new compound is triggered your previous positions stop loss is moved to entry to eliminate that risk. So let’s assume your trades are 2% risk each. You add another position and eliminate risk on the previous. So now you have 4% working for you with only 2% risk. I’ll add up to a maximum of 5 positions in one trend if it allows. This means I could potentially have 10% in position sizing working for me with only my initial 2% downside. Multiply this across however many strong performing trends i’m trading and you can understand how powerful and efficient trend trading can be.

Challenges in Trend Trading

Trend trading in my opinion is the best way to trade and build wealth in this day and age. Having said that it does come with its own challenges. But nothing worth having comes easy right?

Firstly, because of the long term nature of it, the paydays are not regular. Expect larger infrequent paydays. With day trading you may well earn money on a weekly or monthly basis. However with trend trading you’ll go months at a time without income. This could be because there are not always trends happening. Or because your most profitable trades take months to mature. Remember unrealised or paper profits are not yours until the trade has closed.

Trader Psychology is the biggest Cause of failure

Mindset is the next challenge in trend trading. As mentioned your most profitable trades take what feels like an age to mature. Unfortunately in that time you’ll probably take a few losses. That’s just part and parcel of any trading style. Losing trades usually don’t last long, so it can feel like you’re constantly losing before the profitable trades close for profit. Remember, you need patience for those few slow burners that are consistently accumulating profits. To combat this you must develop your trader psychology and train yourself to be patient and disciplined with your trading.

The last challenge with trend trading is around compounding. Compounding is essential for exponential growth of your trading account, but it can make your trades top heavy. By this I mean that when the trends are moving in your direction everything is good. You should be accumulating healthy profits across multiple positions per trend. However trends don’t move in a straight line. When the pullbacks come the paper profits you originally had can quickly vanish. Of course you’re managing your risk so you know your downside potential. That being said, if you involve your emotions, then seeing your paper profits disappear can be upsetting. If you’re trading multiple stocks at once, its likely the pullbacks will come all together as well because of the nature of how the stock market works.

To overcome this, again you need to develop your trader psychology. Leave your emotions and ego on the side lines. Remember paper or unrealised profits are not what you’ll leave the market with. You need to focus on where your trailing stop loss is because that is realistically how much profit is secure.

Trading Software

Trading from your phone or using free broker software can also be a hindrance to many new traders. To stack the odds of success in your favour use professional trading software with the right capabilities for trend trading. I use TradingView as my trading software.

Be the Smart Money

Do not let the above challenges discourage you. I just want to be honest about what it entails. Other styles of trading come with their disadvantages as well but I believe the advantages of trend trading far outweigh any other trading style. With the right mindset and time, becoming a successful trend trader is achievable. With it you can build wealth and gain time freedom to live life by your own design!

Learn to Trade for Yourself

If you’re interested in being taught our trend trading and swing trading strategies, feel free to email me on [email protected] for more information.

Trend Trading

What is Trend Trading?

Trend trading is a trading style that attempts to capture gains through the analysis of an asset’s momentum in a particular direction. When the price is moving in one overall direction, such as up or down, that is called a trend. Trend traders enter into a long position when a security is trending upward. An uptrend is characterized by higher swing lows and higher swing highs. Trend traders may opt to enter a short position when an asset is trending lower. A downtrend is characterized by lower swing lows and lower swing highs. There are a variety of trading strategies, such as the chikou span.

Four Commonly Used Indicators In Trend Trading

Understanding Trend Trading

Trend trading strategies assume that a security will continue to move in the same direction as it is currently trending. Such strategies often contain a take-profit or stop-loss provision in order to lock in a profit or avoid big losses if a trend reversal occurs. Trend trading is used by short-, intermediate-, and long-term traders.

Key Takeaways

  • Trend trading is a method of trading designed to take advantage of uptrends where the price tends to make new highs or downtrends where the price tends to make new lows.
  • An uptrend is a series of higher swing highs and higher swing lows. A downtrend is a series of lower swing highs and lower swing lows.
  • In addition to looking at swing highs and lows, trend traders utilize other tools like trendlines, moving averages, and technical indicators to help identify the trend direction and potentially provide trade signals.

Traders use both price action and other technical tools to determine the trend direction and when it may be shifting.

Price action traders look at the price movements on a chart. For an uptrend, they want to see the price move above recent highs, and when the price drops it should stay above prior swing lows. This shows that even though the price is oscillating up and down, the overall trajectory is up.

The same concept is applied to downtrends, with traders watching to see if the price makes overall lower lows and lower highs. When that is no longer happening, the downtrend is in question or over, and therefore the trend trader will no longer be interested in holding a short position.

Trend Trading Strategies

There are many different trend trading strategies, each using a variety of indicators and price action methods. For all strategies, a stop loss should be used to manage risk. For an uptrend, a stop loss is placed below a swing low that occurred prior to entry, or below another support level. For a downtrend and a short position, a stop loss is often placed just above a prior swing high or above another resistance level.

Moving Averages: These strategies involve entering a long position when a short-term moving average crosses above a longer-term moving average, or entering a short position when a short-term moving average crosses below a longer-term moving average. Alternatively, some traders may watch for when the price crosses above a moving average to signal a long position, or when the price crosses below the average to signal a short position.

Typically moving average strategies are combined with some other form of technical analysis to filter out the signals. This may include looking at price action to determine the trend, since moving averages provide very poor signals when no trend is present; the price just whipsaws back and forth across the moving average.

Moving averages are also used for analysis. When the price is above a moving average it helps to indicate that an uptrend may be present. When the price is below the moving average it helps to indicate that a downtrend may present.

Momentum Indicators: There are many momentum indicators and strategies. In regards to trend trading, an example might include looking for an uptrend, and then using the relative strength index (RSI) to signal entries and exits. For example, a trader may wait for the RSI to drop below 30 and then rise above it. This could signal a long position, assuming the overall uptrend remains intact. The indicator is showing that the price pulled back but is now starting to rise again in alignment with the overall uptrend.

The trader could potentially exit when RSI rises above 70 or 80 and then falls back below the selected level.

Trendlines & Chart Patterns: A trendline is a line drawn along swing lows in an uptrend, or along swing highs in a downtrend. It shows a possible area where the price may pull back to in the future. Some traders opt to buy during an uptrend when the price pulls back to, and then bounces higher off of, a rising trendline. Similarly, some traders opt to short during a downtrend when the price rises to, and then falls away from, a declining trendline.

Trend traders will also watch for chart patterns, such as flags or triangles, which indicate the potential continuation of a trend. For example, if the price is rising aggressively and then forms a flag or triangle, a trend trader will watch for the price to break out of the pattern to signal a continuation of the uptrend.

Often times, traders use a combination of these strategies when looking for trend trading opportunities. A trader might look for a breakout through a resistance level to indicate a move higher may be starting, but only enter into a trade if the price is trading above a specific moving average.

Trend Trading Chart Example

The following Alibaba Group (BABA) chart shows several examples of how trends can be analyzed, as well as some examples of potential trades using chart patterns and the trend.

The price starts out in a downtrend. The price then rises through the descending trendline and above the moving average. This doesn’t mean the trend is up, though. Trend traders will typically wait for the price to also make a higher swing high and a higher swing low before considering the trend up.

The price continues to move higher, confirming the new uptrend. The price pulls back and then starts to rise again, forming the first chart pattern. The price breaks higher out of the chart pattern, signaling a potential long position.

The uptrend continues aggressively, forming two additional chart patterns along the way. These both offered opportunities to enter a long position or add to an existing one (called pyramiding).

The price continues to rise, but then starts giving warning signs. The price drops below the moving average for the first time in a long while, it also creates a lower swing low and breaks through a short-term rising trendline. The price makes a new high after that, but then drops below the moving average again. This is not strong uptrend behavior, and trend traders would typically avoid going long during conditions like this. They would also be looking to exit any remaining longs they may have.

The price continues to oscillate around the moving average, with no clear trend direction. Finally, the price slides into a downtrend. Trend traders would be out of longs and avoiding new ones, and possibly looking for spots to enter short positions.

Трендовая торговая стратегия Riffster Trend

Трендовая торговая стратегия Riffster Trend – эффективная система с простыми правилами, в которой потенциальный доход значительно превышает торговый риск.

Трендовая торговая стратегия Riffster Trend – еще один пример классического сочетания индикатора тренда и осциллятора, фильтрующего сигналы, в качестве которого выступает индикатор RSI. Стратегия обладает высокой прибыльностью, поскольку потенциальная прибыль значительно превышает торговые риски.

Входные параметры

  • Валютные пары: EUR/USD, GBP/USD, GBP/JPY, GBP/CAD, CAD/JPY, AUD/JPY, USD/JPY, EUR/GBP, EUR/USD, NZD/USD, AUD/USD, NZD/CAD, NZD/JPY
  • Таймфрейм: М15 и старше, рекомендуются H4 и Daily
  • Время торгов: любое
  • Риск-менеджмент: после расчета стоп-лосса выбирайте такой объем лота, чтобы риск был не более 2-5% от депозита на одну сделку

Используемые индикаторы

  • RSI filter (25)
  • Riffster indicator power (2)
  • Inverse RSI (7)

Настройка ценового графика

  • Распаковываем архив
  • Шаблон копируем в папку templates
  • Индикаторы копируем в папку MQL4 -> indicators
  • Перезапускаем терминал
  • Открываем график нужной валютной пары
  • Устанавливаем шаблон с именем Riffster Trend Strategy

График должен выглядеть так:

Шаблон торговой стратегии Riffster Trend

Сигналы, указывающие на открытие длинной позиции

  • появилась зеленая стрелка вверх;
  • бар индикатора RSI зеленого цвета.

Примеры входа в длинную позицию

Сигналы, указывающие на открытие короткой позиции

  • появилась красная стрелка вниз;
  • бар индикатора RSI красного цвета.

Примеры входа в короткую позицию

Установка ордера стоп-лосс и тейк-профит

  • стоп-лосс устанавливается выше/ниже предыдущего локального максимума/минимума;
  • тейк-профит устанавливается в зависимости от используемого таймфрейма и валютной пары. Рекомендуется соотношение стоп-лосс к тейк-профит 1 к 3.

Стратегия Riffster Trend обладает простыми правилами и будет особенно востребована начинающими трейдерами. Перед использованием трендовой торговой стратегии Riffster Trend на реальном депозите обязательно протестируйте ее на демо-счете.

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