Trend following

[B]The trend is your friend.[/B]


this is my first contribution to this forum. :stuck_out_tongue: The strategy/system i use is trend following, in it’s many ways.

I would recommend you all to read Michael Covel’s book called just that, Trend Following. It’s an exellent book, though I’m not quite sure if Michael was the right man to write it. He tends to get rather fanatic, and write things like: fundamentals are useless. And when faced with the question of how Jim Rogers got so rich, even though he did not use techinical analysis, his answer is: “Can you emulate Jim Rogers?”, avoids the question like a politician.

Now to the point. I usually define trends with either trend-channels, or moving averages (40 bars) , and moves in it’s direction till it bends. Covel has a point when he says that it is one of the extremely few systems that works in “every” market situation. One can teach this to a 8 year-old. :smiley:

When you have tried it for a while, you can start trading within the channel. For that I use mainly stochastics and candlestick-reading, to increase your profit.


hi sounds intesesting ,how many pips on average a week or day can this system make you,what are your biggest loses and how long you beeen trading this way
thanks my friend for shareing

This might sound strange coming from a guy sharing strategies and stuff, but I’ve never tried it with real money in the forex market. I have done it with equities, and it works well there aswell, but when i found the forex market and saw how much it trended i was blown away. On one lucky demo-trade in march i made around 800-900 pips on one month. (just whish it was real cash) I find it less fun, since I usually do scalping and very short-term trading. You are just rolling with the flow, but you make lot’s of money. Instead of the usual trading mantra; “no herd behaviour allowed”, you do the opposite. Just follow the herd til it moves in a direction that is not profitable for you. I cut my losses the moment I see that they break the trend. This has kept me from earning some cash, but protected all of my cash. It’s like buy high and sell low, instead of the usual concept; buy low, sell high.

Stocks don’t trend nearly as much as a currency. Used with leverage this technique is solid and very profitable in the forex market.

*NB: It is very important to observe the underlying trend on a large timescale before entering.

Attached is the GBP/USD daily chart. It has two distinct channels the upmove from early March to late April and the downmove from early May to now. The redline is a 40 period SMA.

What type of entries and exits would I use in this trend system?


There are many ways. I’ve not done this too much in forex, only through demo. But at the beginning (in the equitiy market) i used trend channels for both entry and exit. This means that you will most times enter a trend late. But that does not really matters since the point is to constantly be in a trend. So if it ends, you just find a new one.

I realize that this is a rather difuse strategy, so I have personally gone over to using a different mix of moving averages.

I never use any of the lower indicators (MACD, Stochastics, RSI), since i find them giving me many false signals, and premature exits.

EDIT: Ah, I forgot to mention. I operate on 4-hour charts, and I do no longer operate with the 40 bar moving average.