There are various ways to trade the trend-following strategies which I have. The basic principles for entries, exits etc will be the same regardless of the strategies which are mentioned below. However, depending on one’s schedule, you can modify the timeframe to trade this strategy.
The three methods are as follows:
1) trading H4 on specific currency pairs
2) trading D1 on all markets
3) trading D1, with zooming down to H4 for entry
Trading H4 on Specific Currency Pairs
This is the method I use extensively as I hold a full time job and do not have the time to look at the market when needed to. For this method, I will use it on forex markets, as this is the instrument which I started trading with. There is one addition reason why I had used it for forex markets; as I have a way to improve the probability of the trade.
Every weekend, I will use my indicator to scan through all the major forex pairs. I will look at the trends on the MN (monthly) timeframe and the strength of the currencies for the past week. I will then rank the currencies in terms of strength – for both MN and W1 timeframes. For MN, I will use 20MA to determine its trend, while for W1, I will based it on whether the currency strengthened or weakened against the other currencies.
After ranking the currencies, I will decide on the strongest currency/currencies (typically at most 2) and the weakest. For example, NZD is deemed to be the strongest amongst the lot, while CAD and CHF are the weaker ones. For the coming week, I will look to LONG both NZDCAD and NZDCHF, based on the entry methods I had mentioned in my previous post.
It should be evident why I had decided to do this ranking; is to increase the probability of trade, based on the assumption that the strong currency will continue to strengthen and vice versa. This method is unique to currency markets. Other markets where this could be applied would be those instruments that involve currencies. For example, Oanda provides gold charts in various currencies, XAUUSD, XAUJPY, XAUCAD etc. If you plan to go long on gold because it is strong, you will want to choose the weakest currency and long that pair (instead of longing gold vs the stronger currency).
Anyway, this method will require me to look at the chart every 4 hours. I will set a recurring alarm to notify me to look at the chart every 4 hours, 5 minutes before the new candle forms.
Trading D1 on All Markets
This method, in some way, require you to just look at the market once a day. However, for that 10 minutes or so before the daily candle form, you will need to quickly run through all the potential pairs and decide if you want to enter for the specific markets. Similar to the above, I would use 20MA to define the trend on both MN and W1. Potential pairs refers to those that shows the same trend on both timeframes.
For this strategy, you should ideally trade all markets as per what a trend-following strategy will do. All markets will refer to not just currency pairs (major and minor), but also commodities, precious metals, indices, bonds, basically everything. Typically in a week, you should expect at least 15 charts which you need to check once a day, and make the necessary calculations to position size and enter your trade when the new day comes. For me, I am unable to do so due to my work, but if you are a student or a retiree, this method allows you to trade just once a day and free your time for other more important things in life.
Trading D1, with Zooming Down to H4 for Entry
This method will require the most amount of your time per day (looking at 2.5 hrs or so in a day) to trade, but I will say, will return the most profits and is, in my opinion, the most complete of my trend-following system. Basically it is the same as 2nd method, but it involves zooming down to lower timeframe to obtain a better entry.
If you have a bullish engulfing candle on the daily, why wait till the end of the day before you enter the trade? Look at the H4. I believe you would have notice many strong H4 bullish candles which you could give an entry point and let you get into the trade earlier and to use a smaller stop loss.
Anyway, every 4 hours, we will look through all the potential pairs on H4 timeframe, using the same basis for entry. If we enter a trade, we will not add on positions within the same day. We let the trade play out. We look to add on positions the next day (when new D1 trading candle form). As such, we will have lesser markets to look at along the day (as we entered into certain markets). If however, we get stopped out on H4, we can look for another entry. Exit is based on the same principle.
I hope you had understood the methods I shared above. Do not be too bothered on which broker you are using, because even though their H4 candles will appear slightly different, I am very certain a strong candle will show regardless how it is formed.
Happy trading!
thetrendfollowingtrader 