The most boring trend-following plan

After posting elements of my “wisdom” across the site, it occurs to me that maybe I haven’t posted in detail what I’m doing - how I actually put all this into practice. So, I felt a little obliged to be open about how I’m doing what I’m doing.

This is not a journal, I won’t be posting my trades, but I aim to post how to identify what I will be trading and how I will get in/out.

First off, I am a long-term trend-follower. A price chart will have to trend for more than a week before I’ll get interested. Also, I only enter/exit trades via orders, I never manually open/close a trade: there’s no need for me to watch price charts live and I’ve got better things to do.

I follow a very simple strategy with no off-chart indicators, no news input, no FA input. As far as possible, I want to use objective criteria only.

Primary requirements -
(example is for longs, reverse as appropriate for shorts)
All must be fulfilled.

  1. 20EMA is above 50EMA
  2. 50EMA is sloping upwards
  3. 50EMA is above 200EMA
  4. Price is above 200EMA

Secondary requirements -
As many as possible of these must be fulfilled: a higher score prioritises a trade in that pair.
5. At least 80% of last 16 weekly highs, lows and closes above 50EMA?
6. At least last 4 weekly bars not pierced by 50EMA?
7. At least last 8 weekly bars not pierced by 50EMA?
8. At least last 4 weekly closes above 50EMA?
9. At least last 8 weekly closes above 50EMA?
10. Does last complete weekly bar overlap fewer than 4 immediately preceding weekly bar ranges?
11. Does a clear majority of other pairs with same base currency also show 20EMA above 50EMA?

This gives a possible maximum score of 11 per chart. I will prioritise long entries into pairs with highest scores. Entry signals are not a key factor but will be typically -
a) just above a daily close that is above the 20EMA following a daily close below it on the previous day
b) just above a daily close on a bullish candle that has traded below the 20EMA but closes above it

An admission - I sometimes take a long when the 20EMA crosses above the 50EMA as long as price is above the 200EMA.

Stop-losses on the initial position is TA-based, e.g. just below the low of the last swing low on the dailies. If that’s too far away, use 1-2ATR below entry (the aim at this point is to be long in the uptrend, not to get the most finessed entry price).

No TP’s.

Pyramiding -
When initial trade opened, set a new entry order where initial trade will reach profit equivalent to initial risk in £. When this triggers, set trade 2’s risk to the same in £, move Trade 1’s SL to b/e. Keep setting new entry orders at each increment of the same gain in £, and moving each existing trade’s SL up by the same £.

Be aware that pyramiding this way only shows an excess profit over a single buy-and-hold long once 5 consecutive trades are open. After that the advantage goes almost parabolic.

I could spend all day listing what I don’t give attention to but the main ones would be off-chart indicators, newsflow, support/resistance and trend-lines.

Cheers folks. A bit more detail to come later on my top-scoring charts.

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Top scoring opportunities are all longs this week.

On 10pts, EUR/CHF, EUR/JPY

On 9pts, CAD/CHF, EUR/NZD, GBP/NZD
Also Dow and S&P

On 8pts, CAD/JPY
Also Brent and Nasdaq100

Relative to other currencies -

  1. CAD continues bullish but weakened last week
  2. EUR and GBP continue strong
  3. The big question obviously is where does USD go next?

The Dow and S&P are clearly over-extended, while the NAS has already entered a correction phase. What the NAS does about getting out of that will probably indicate what happens to the others.

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First of all, I want to thank you for your effort on the form. But, I didn’t understand the above.

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Cheers mate.

Actually its more simple than you might be thinking so maybe that’s where any confusion comes from. If you see the items 1-11 in my first post, I allocate 1 point per positive answer as a measure of how bullish the uptrend is. So each bullish pair has a possible maximum of 11 points, each bearish pair also has a maximum available of 11 points. Its a way of not just deciding trend direction but also comparing how attractive each trend is to my strategy.

Obviously, if a certain criteria question is more crucial to your strategy than to mine you could allocate 2 or more points to that answer. and you could change the selection of primary requirements to suit.

Is that OK?

Thank you for sharing Tommor.

When it comes to trading I think keeping it simple is the best policy.

Looks like a solid system. I esp agree with you when it comes to entering with orders and not using a TP.

Thanks again for sharing

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Thanks, that clears up the confusion.

Hi Tommor,

Thanks for the interesting read. Quick Question. Can the same strategy be applied to say 4 hours or 1 hour period?
For example if you look at recent USD/CAD progression, in Day chart the price is still shaping up to go above 200 EMA but in 4H or 1H chart, the conditions are already fulfilled.
So whats your say in that?

Accepting that price charts on different time-frames are fractal, I don’t see any reason why it wouldn’t work. A trend is a trend is a trend. You might need to adjust the periods of the EMA’s a touch, or equally leave them alone but vary your time-frame.

Of course, even someone trading off the dailies like me might have their own preference as to how much weight they give this or that factor. I give all of mine 1 point each towards either a bullish or bearish score: but another trader might think that the 50EMA slope is more important so they might allocate 2 points to that one.

@tommor - Do you think the timescales are really fractal on the forex ? I can see daily and above going there, but the shorter ones have trading conditions on all the different exchanges to work through. I think that might distort the effectiveness of your strategy for the short times - just a thought. :slight_smile:

Its not a theory I’ve ever checked into as I don’t trade intra-day, but people who do say its fractal. DYOR seems to be the best policy here (as anywhere).

It might be interesting (or boring, I don’t know) for some of you to learn how this most boring trend-following system performed through the recent volatility in the US markets.

Four Nas100 longs closed at SL on 24/01, leaving 6 S&P longs open. Healthy net profits.

One further Nas100 triggered long 26/01 but I manually cut 80% of this on 30/01 when it fell half-way to SL. Remaining 20% closed automatically on 02/02 when it hit SL. Nothing since on any US indices, so I was basically in cash through the turmoil of the 2nd and since.

No profits from this event but no loses either, and carrying forward no risks either. Happy days.

I think I’ll take another look at this thread "tommor"ow when I’m a little more sober !

I do wish I could have the psychology to work with the logic - but I’ll be back and see if I can !

atb

F

Update - I have abandoned the price:200EMA requirement - not reliably indicative.

First of all, I want to thank you for sharing this strategy.
What is the difference between entering trades manually and ‘via orders’?
Did you mean that you are using limit orders rather than market orders?
I couldn’t really understand what you meant by ‘manually’ here, on MT4 all the orders are placed using the order window.

All my positions are opened by a pre-set order, as each position is pre-planned after the end of the day. So, if for example I wanted to get long into a trend-following position on USD/JPY, I would set a buy stop order above current price, so if price does go up, my order will be triggered. This is a little extra confirmation that I have got the timing of the upward movement right. I set a buy order usually after a down day, and the order level would usually be a little above the high of the down day. This could be a swing low or just a weak day with a low close.

To be honest, timing the entry and getting the best price for entry are not highly important to me, as long as I’m not chasing price and buying at a high that is above where price has been over the last month or so.

This is clear now, this system probably does not signal that many trades per year, I think it is suitable for longer term positions, right?
Could you share one of your recent trades you took with it in FX?

Actually, this set-up does not print frequently on any ONE pair, but trend-following demands tracking multiple charts. I watch the big pairs formed by the major currencies and occasionally look at some minors like SGD etc., plus the major US, DAX and UK indices plus oil and gold. But I only start to watch one of them closely when it prints the mandatory set-up features, then I start looking for an entry point.

People say prices only trend 20% of the time, so if you only watch 5 charts, one of them should always be trending. OK, this is a bit glib, but the principle’s right.

I don’t share trades.

A little update to this boring plan. The update is maybe not so boring as the plan.

Strategy remains basically similar - follow every trend as soon as its made visible by the slope of the 50EMA, use any old entry signal that’s not an extreme high/low, let the losers exclude themselves, and pyramid every winner.

I have played around a bit with MA lengths and have started to ignore the 200EMA. But the major change has been starting pyramiding more aggressively. I now use a stop-loss at 2 x ATR20 from entry, seems a good idea to have a volatility-related stop distance. This has helped me to sharpen the pyramid rule which is now to add a new position at +/-0.5 x ATR20 from entry. This obviously can ramp up position size quite quickly and adds to capital risk, but this should reach only a max. of 2.5%. Not waiting for a TA-based signal for pyramiding either. This is aggressive, use with caution.

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What’s your preferred currency pairs in trading? Do you trade crosses or metals?

Your query as to which pairs I trade only makes sense for day-trading but I don’t trade intra-day.

I trade the Dow and occasionally take positions in gold, silver and Brent Crude.