Trading with the Trend Strategy

Screen Shot 2014-06-17 at 11.12.19


Video Transcription

Hey, Traders. This is Cory Mitchell. Welcome to video two of the Advanced Forex Strategies Course. In this video, we are looking at trend trades. This strategy is available for trade on all timeframes, brought to you by

So, trend trading is where most of the money is. There are multiple ways to trade trends, but this strategy is a staple. It gets us in early, keeps risk small, and profits are larger than losses. It’s usable on all timeframes, for day trading or swing trading. So, an uptrend occurs when the price is making higher swing highs and higher swing lows. The downtrend occurs when the price is making lower swing lows and lower swing highs. A swing is an overall movement in price.

Trade in the direction of the trend. If the trend is up, we’re only looking for long trades. If the trend is down, we are only looking to sell or take short positions. This setup does not occur as often as we would initially suspect. It’s a fairly simple setup.

We’re going to look at a multitude of trending trade examples or trending strategies, so that you’re going to have one for each sort of look of a trend. This is one of those strategies. So, this along with other trend trading strategies we’re going to look at is going to give you a full arsenal of tools to trade any trend that you see, or most of them when they offer a good setup.

So, during an uptrend, we wait for the price to pull back and pause at the bottom of the pullback to establish a small range. That small range must be at least four price bars by when the price breaks above the small range, back in the trending direction. If there’s no pause, we don’t take a trade. We’re looking for that pause because it gives us our edge and lets us know that selling has slowed. So, remember, we’re in an uptrend, but we’re buying on a pullback, which means there’s been selling that just took place. That paused. Make sure that that selling has slowed or stopped.

Stop goes one pit below the small range. Target is placed at 1.6 and 2.6 times our risk. This allows us to . . . No matter what our risk is, we can compensate by taking a larger profit. So, if our risk is 10 pips, we place a target at 16 pips and 26 pips. Whenever possible, split up your position. Instead of taking two or three mini lots on one trade, we’re going to take two or three positions of one mini lot each. That way, we can get one lot out at 1.6 and the next lot out at 2.6.

During a downtrend, we wait for the price to pull back and pause at the top of the pullback to establish a small range. That small range must be at least four bars. We short when the price breaks below the small range, back in the trending direction. Once again, if it doesn’t pause, we don’t know that that momentum has slowed yet. So, we don’t take the trade.

Stop goes one pip above the small range, and our target is the same. If we’re risking 10 pips, we’re looking for a target of 16 to 26 pips. We’re going to split up our position. As we covered in the first video, we still only want to risk 1% in that pair that we’re in. So, even though we’re splitting our position up, we still want to make sure that we’re not risking more than 1% per trade.

So, let’s look at a couple examples here. Here’s one. We have this very short move higher. So, we’re moving within an uptrend. If we go back a little bit, we can see overall progress higher, very choppy trading in here, but we have this strong move. So, we’re looking for a continuation to the upside, this little arrow here marking. So, we have a pullback, kind of pops higher, but we don’t have a four-bar pause in here really, because this is almost a move higher again. Move back down.

But here, we have a definite pause. So, we’re looking for this sort of pause here, where we have four bars that form a little area for us. So, this isn’t actually that big, but right about there. That’s kind of our four-bar pattern. So, we place our stop one pip below. It’s going to be very close here, since this is only about eight pips or so. I’m going to use this measuring tool quite a bit. So, I’ll show you what it does.

You can see. It says 0/110-1.69609. So, that middle number, where it says 110, that’s pips. We need to insert the decimal. So, 11 . . . That basically means 11 pips. So, 11.0. So here, this is our entry points. We have this little range established. We wait for a breakout above the high. So, it would occur on this bar here, where we have the little pop out of the range.

So, basically as soon as that happens, you’re looking to go long. So, it’ll be . . . Our entry point will be just above that range to our stop. We are looking at almost exactly 10 pips. So, our first target is going to be at 16 pips. So, that would be right about there, or slightly higher.

So, this is the area of our first target. So, we’re risking 10 pips in that first position we’re making 16 pips on. So, we’re making 60% more profit than we have at risk, and our next target is at 2.6 times. So, from the breakout point, just slightly above it, wherever our entry point is. We are looking for 26 pips, so right about there, 25.9, 26.2.

So, right in here is where our second profit target is for 2.6. The 1.6 and 2.6 work well because it is based on your actual risk at stake. So, here we had a very large move, small amount of risk though. Even though this didn’t have a lot of upward momentum, we’re still able to get out. I find the 1.6 is very reliable for getting out. Two point six is a larger target. So, sometimes that one will get hit.

Once this . . . Let’s change these to green, to mark targets. Once our first target is hit, we can move our stop to our break-even price, so right about there. That way, if we have one remaining position or however remaining positions you have, which are waiting for this target to get hit, we’re not going to lose money on them. So, we’ll make money on this one. If it does happen to pull back, we won’t lose money.

Once it gets close to this target, so once we’re within a few pips of that one, I will move my stop up to the old target because I do not want . . . If we get within a couple pips of this target, I don’t want to give up a whole bunch of profit just for waiting for that one pip. So, I’ll move up my stop to there.

Let’s look at a few downtrend examples. We had downtrend examples. So, we had this uptrend here, big explosive move there, and then we start to channel down. So, once we’ve had a few swings to the downside, we’ll start to look for trades to trade the downtrend.

Here, we have a pause here. Let’s forget about that volatility for a second. But basically I have a pullback, and we have some sideways movement here for about four bars. We are waiting for a move to the downside. So, even though this broke up, that wouldn’t matter because we’re waiting for a move to the downside.

So now, we have five bars there that form our consolidation or a pause, and we have a big move down below the bottom. So, this is our entry point right here when it breaks below our little range. Stop is placed one pip above. So, let’s just measure out our risk. Remember, our entry point would be just below that range, 27.5 pips. Our risk is 27.5 pips. Let’s calculate that out, 27.5 times 1.6, 44 pips for our first target, and 71.5.

So, 44 pips would be right about there. So, we would have easily gotten out of that one, and this move could very strong move. Then, we are down here at 71.5 pips from our breakout price. We’re right in this area here. You can see that 71.3. So, our target would have been right about there. So, we have very nice action like this, strong selling pressure. It is likely to trigger both our targets.

Once again, once our first target is hit, we will drop this down to our break-even price. Once the price is in this area here, we’re out of this position. The price is approaching our second target. We can move our stop down to there. That’s just so that we don’t give up a bunch of profit.

I have one marked here called “questionable”, and that would be this one here, simply because we made a higher low. But then, we’re making a lower high. So, this one, I probably would have traded it. If you want to . . . When you’re practicing this strategy, you might want to avoid this one and just trade these types, where there’s really no question whether the trend is down. We have all lower highs, all lower lows. Whereas here, we have an up move, a down move which doesn’t make a lower low, and then a pop higher again. So, this one is a little bit more questionable, a little bit more subjective.

Here, once again, we have a strong move back to the downside. We make a new low. Price pulls back. We’re making a lower high as it forms. We have this pause, where we can see we have a little support area here. When the price breaks below it, we are looking for that continuation to the downside. So again, stop would be placed here. Target’s at 1.6 times our risk and 2.6 times our risk.

So, a little review. Every trade has a stop and a target, which is put out when you place the trade. Only risk 1% of your account on a pair. Taking multiple positions gets you out at different targets, but we’re still sticking to that 1% per trade rule.

Only trade in the trending direction, following a pullback, pause, and a break back in the trending direction. No pause, no trade. Basically that shows us that momentum in the opposite direction of the trend has stalled. So, we are looking for that edge and can trade in the trending direction once that small range is broken.

Place the stop just above the small range for a downtrend, just below the small range for an uptrend. Split up your positions, as I mentioned before, but still only risk 1%. By splitting it up, you can take profit at different profit targets. Targets are 1.6 and 2.6 times the risk. Trading involves substantial risk of loss. Only trade with capital you can afford to lose. Trading with capital that you absolutely need is very stressful and will likely result in an outcome that you do not want.

Test out strategies before using them to make sure you’re actually able to implement them yourself. Watching these is one thing, but you need to actually go through, go through some charts, isolate these, practice putting out your targets, practice putting out your stops, calculating. You may have to do this very quickly if you’re trading on a one or five-minute chart. If you’re trading on an hourly chart, you have more time. Until next time, happy trading.

Comments are closed.