Having a solid trading strategy is a key point in your way to becoming successful in trading. You can choose from any strategies known and available to you or you can develop your own. Remember though, that if you decide to make use of a ready one, you should introduce some adjustments so it fits your personality better. Cause a trading strategy is quite an individual matter.
This article will reveal a few tips and tricks that you can apply to any trend following strategy for forex trading at Olymp Trade. I hope you will find them helpful.
3 simple tricks for your strategies
Compare to a higher timeframe
You set your chart by, among other things, choosing the timeframe. You may be fond of 30-minute charts or 1-hour charts. But it might be a good idea not to limit yourself to one timeframe only. When you switch to the bigger candlesticks period you will see the bigger picture. Let’s have a look at the exemplary chart below.
You are trading on the 30-minute timeframe. You add a 200 period SMA to the chart and you are waiting for the price bars to form above the SMA. This would be a sign there is an uptrend in the market and you can open a long position.
But look at what happens when you change the timeframe to 4 hours. Now you can see that in fact there has been a long downtrend in the market and it is still continuing. So what to do in this situation?
You can naturally look for the opportunity to go long or you can wait for a good short position. There were many pullbacks along the trend that have led to another drop. You may look for the areas of value, which can be your SMA200 or a trendline or whatever you are using to determine such areas and wait for a good trading opportunity.
Find a good place for your stop loss
Setting a stop loss protects your account from huge loss. It closes the position at the level that you previously have chosen. But how to determine this level?
A stop loss should be placed at the level where your analysis is invalidated, that is where you expect to be wrong and you would not like the price to go beyond this value.
I will discuss it on the example. Let’s say you are waiting to open a short position during the downtrend. How do you know there is a downtrend? Well, a downtrend is when the price creates lower lows and lower highs. When you see such a situation on the chart, you got a downtrend. The places where you want to enter the trade are at the pullbacks because they are probably going to end soon and the downtrend will be continued. What is the best place to set a stop loss?
A stop loss should be placed close to the height of one of the previous pullbacks. This is a level that invalidates your analysis.
Move your stop loss
Once you set a stop loss it does not become something immovable. Quite the opposite. In order to protect your capital, to minimise losses and maximise profits you should adjust the stop loss along with the market movements. How to do it?
Let’s say you are searching for the opportunity to go short during the downtrend. You are waiting for the pullback and set a stop loss at the level of the previous pullback’s high. After you see the prices are going in your favour, wait for the consolidation, even a small one. Wait for the breakout in your favour and then move your stop loss.
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|Compare to a higher timeframe
|Analyzing a higher timeframe can provide a broader perspective and reveal significant trends in the market.
|Find a good place for your stop loss
|Set your stop loss at a level that invalidates your analysis and protects your account from excessive losses.
|Move your stop loss
|Adjust your stop loss along with market movements to protect capital and optimize risk management.
Conclusions on our tips for trend following strategies
There are plenty of trend following strategies you can choose from. What is important is that you make them yours either by designing your own strategy or by adjusting the existing one. Whichever you choose there are some tricks that will improve your performance. I shared 3 tips with you in this article.
First, it is not the best idea to rely strongly on one timeframe and open transactions whenever the price bars form above (or below) the moving average. Look at the bigger picture by changing the timeframe to a higher one.
Find a good place for your stop loss by searching for the level which invalidates your analysis.
Move your stop loss when the price moves in the direction of your trade, then it consolidates and then breaks again in your favour.
Head to the Olymp Trade demo account to test today’s tips. This is free of charge account supplied with virtual cash. You are welcome to use it as long as you need it and whenever you need to. It is always there so make sure you practice a new approach in the demo account before you trade in the live one.
Do you have any comments on the trend following strategies? There is the comments section down below the site designed as a place to share your thoughts with other traders. We would be happy to hear from you!
Best of luck!
- Q: Why is comparing to a higher timeframe important?
- A: Analyzing a higher timeframe provides a broader perspective, allowing traders to identify significant trends and make more informed trading decisions.
- Q: What should I consider when setting a stop loss?
- A: When setting a stop loss, choose a level that invalidates your analysis and protects your account from excessive losses. It should be based on your risk tolerance and trading strategy.
- Q: Why is it recommended to move the stop loss along with market movements?
- A: Moving the stop loss allows traders to protect their capital and optimize risk management. By adjusting the stop loss as the market moves in their favor, traders can secure profits and minimize potential losses.
- Q: Can these tips be applied to any trading strategy?
- A: Yes, these tips can be applied to various trading strategies, including trend-following strategies. They are designed to enhance performance and improve risk management.
- Q: How can I practice these strategies?
- A: You can practice these strategies on the Olymp Trade demo account, which allows you to trade with virtual funds and test different approaches without risking real money.
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