Manoj's Trading Diary
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Simply Trade the Trend Template
This is a basic template for trading intraday trends.
1. Find the trend
First, find the trend. Keep it simple and choose only one trend-following tool to help you.
Suggested trend tools:
Moving average sloping up or price crossing above moving average
MACD moving above zero line
ADX moving up above 25
Trend lines (HH, HL, or LH, LL)
Oscillator indicators with a long look-back period (including stochastics, CCI, RSI)
2. Define a retracement
Now, wait for the trend to slow down and retrace before trading it.
Jumping on a car while it is speeding can get you to your destination. It’s just a little challenging to find ways to do it without getting hurt. It’s the same for trading trends. We can hop on the trend while it is blazing away. The problem is with setting stop-loss orders to protect us.
This is not a problem if you are trading a long-term trend. However, day traders’ have limited profit potential within the day. Hence, we need precise stop-loss points to support our positive expectancy.
Define what is a retracement within the trend. For instance, in the Holy Grail trading strategy, a retracement is when prices fall back to the moving average in a bull trend.
Remember our aim. Choose only one tool to help you with defining the retracement. If you can use the same tool you chose in first step, then you are a champion minimalist trader.
Suggested tools to define a retracement:
Moving average
Oscillator indicators
Trend line break
Break of an earlier swing low (for long trades) or swing high (for short trades)
Price pattern like three-bar pullback
3. Entry and exit rules
A day trading strategy is never complete without specific entry and exit rules. You must know exactly when to enter a position and when to exit so that you can act without hesitation. These specific rules also help to define our reward-to-risk ratio for each trade.
To keep things simple, do not add another indicator. Use the indicators you have chosen from the earlier steps.
Suggested entry methods:
Bar patterns and candlestick patterns
Any bull trend bar
Oscillator turning direction
Close above moving average
Suggested exit methods:
Bar patterns and candlestick patterns
Previous extreme of trend
Oscillator turning direction
Measured move
Source: http://www.tradingsetupsreview.com
An example for this:
This is a basic template for trading intraday trends.
1. Find the trend
First, find the trend. Keep it simple and choose only one trend-following tool to help you.
Suggested trend tools:
Moving average sloping up or price crossing above moving average
MACD moving above zero line
ADX moving up above 25
Trend lines (HH, HL, or LH, LL)
Oscillator indicators with a long look-back period (including stochastics, CCI, RSI)
2. Define a retracement
Now, wait for the trend to slow down and retrace before trading it.
Jumping on a car while it is speeding can get you to your destination. It’s just a little challenging to find ways to do it without getting hurt. It’s the same for trading trends. We can hop on the trend while it is blazing away. The problem is with setting stop-loss orders to protect us.
This is not a problem if you are trading a long-term trend. However, day traders’ have limited profit potential within the day. Hence, we need precise stop-loss points to support our positive expectancy.
Define what is a retracement within the trend. For instance, in the Holy Grail trading strategy, a retracement is when prices fall back to the moving average in a bull trend.
Remember our aim. Choose only one tool to help you with defining the retracement. If you can use the same tool you chose in first step, then you are a champion minimalist trader.
Suggested tools to define a retracement:
Moving average
Oscillator indicators
Trend line break
Break of an earlier swing low (for long trades) or swing high (for short trades)
Price pattern like three-bar pullback
3. Entry and exit rules
A day trading strategy is never complete without specific entry and exit rules. You must know exactly when to enter a position and when to exit so that you can act without hesitation. These specific rules also help to define our reward-to-risk ratio for each trade.
To keep things simple, do not add another indicator. Use the indicators you have chosen from the earlier steps.
Suggested entry methods:
Bar patterns and candlestick patterns
Any bull trend bar
Oscillator turning direction
Close above moving average
Suggested exit methods:
Bar patterns and candlestick patterns
Previous extreme of trend
Oscillator turning direction
Measured move
Source: http://www.tradingsetupsreview.com
An example for this:
Manojbhau,
I have silently followed your journey form novice to professional and congratulations to you for making the cut in 10% successful day traders.
I have a request, if time permits, please start a new thread discribing your journey from the beginning, say how you got grip on drawing trendiness, reading chart, developing trading system, defining R/R & MM etc, that would be a great help to lot of newbies like me, and a path for making a journey from novice to successful trader.
All the best & Happy Trading.
I have silently followed your journey form novice to professional and congratulations to you for making the cut in 10% successful day traders.
I have a request, if time permits, please start a new thread discribing your journey from the beginning, say how you got grip on drawing trendiness, reading chart, developing trading system, defining R/R & MM etc, that would be a great help to lot of newbies like me, and a path for making a journey from novice to successful trader.
All the best & Happy Trading.
Price Action Methods to Define the Intraday Trend:
For day traders, the intraday trend makes the difference between a session of windfall profits and one of major losses. By trading along with the intraday trend, we are following the path of least resistance to day trading profits.
Using indicators to identify the intraday trend is reasonable. However, if we link them up with price action, we are able to enhance their prowess.
Hence, we will focus on using indicators with price action to track the intraday trend.
1. Moving Average with Price Action
This method uses a 20-period simple moving average (SMA) with price action to clarify the intraday trend. Essentially, we are looking for a shallow pullback followed by a new high (low) to confirm a bull (bear) trend.
To confirm a bullish intraday trend, look out for the following conditions. The rationale for each condition is in brackets.
Price touches the moving average. (Establishes baseline. Useful for sessions that open with a gap.)
Price stays above the moving average for at least one bar. (Bullishness)
Price retraces down towards the moving average without making any bar high below the moving average. (Lack of bearish commitment)
Bull trend confirmed when price rises above the last extreme high. (Confirmation of bullish market structure)
To confirm a bearish intraday trend, look out for the following.
Price touches the moving average.
Price stays below the moving average for at least one bar. (Bearishness)
Price retraces up towards the moving average without making any bar low above the moving average. (Lack of bullish strength)
Bear trend confirmed when price falls below the last extreme low. (Confirmation of bearish market structure)
Let’s take a look at an example from the NQ futures market.
This session opened with a bullish gap.
Instead of guessing if the gap would start a new bull trend or close the gap, we waited for price to return to our benchmark SMA.
Price touched the SMA.
This bar stayed below the SMA, confirming the bearish momentum,
This bar made a higher bar high but could not even rise to test the SMA.
As the market fell past the last extreme low below the SMA, we confirmed a bear trend.
This intraday bear trend held up for the rest of the session, despite a 50% pullback in the middle of it.
For day traders, the intraday trend makes the difference between a session of windfall profits and one of major losses. By trading along with the intraday trend, we are following the path of least resistance to day trading profits.
Using indicators to identify the intraday trend is reasonable. However, if we link them up with price action, we are able to enhance their prowess.
Hence, we will focus on using indicators with price action to track the intraday trend.
1. Moving Average with Price Action
This method uses a 20-period simple moving average (SMA) with price action to clarify the intraday trend. Essentially, we are looking for a shallow pullback followed by a new high (low) to confirm a bull (bear) trend.
To confirm a bullish intraday trend, look out for the following conditions. The rationale for each condition is in brackets.
Price touches the moving average. (Establishes baseline. Useful for sessions that open with a gap.)
Price stays above the moving average for at least one bar. (Bullishness)
Price retraces down towards the moving average without making any bar high below the moving average. (Lack of bearish commitment)
Bull trend confirmed when price rises above the last extreme high. (Confirmation of bullish market structure)
To confirm a bearish intraday trend, look out for the following.
Price touches the moving average.
Price stays below the moving average for at least one bar. (Bearishness)
Price retraces up towards the moving average without making any bar low above the moving average. (Lack of bullish strength)
Bear trend confirmed when price falls below the last extreme low. (Confirmation of bearish market structure)
Let’s take a look at an example from the NQ futures market.
This session opened with a bullish gap.
Instead of guessing if the gap would start a new bull trend or close the gap, we waited for price to return to our benchmark SMA.
Price touched the SMA.
This bar stayed below the SMA, confirming the bearish momentum,
This bar made a higher bar high but could not even rise to test the SMA.
As the market fell past the last extreme low below the SMA, we confirmed a bear trend.
This intraday bear trend held up for the rest of the session, despite a 50% pullback in the middle of it.
Continued from last post....
2. Price Channel with Price Action
In this second technique, instead of using a simple moving average of bar closes, we use two moving averages of bar highs and lows. The resulting lines form a price channel to help us clarify the intraday trend.
Since the indicator in this case is more complex, the interpretation rules are simpler. When two price bars stay completely above the channel, we define a bull trend. When two price bars stay completely below the channel, it’s a bear trend.
The example above shows how the price channel helped to define a change of intraday trend.
Although the market has risen sharply since this session opened, according to this method, we could only define a bull trend at this point.
These two bars changed the intraday trend to bearish.
There are different ways to build a price channel. Other than using moving averages of bar highs and lows, you can also use Keltner Bands and Bollinger Bands. As these price channels are constructed differently, you will need to adapt the rules for defining the intraday trend.
Finding the Intraday Trend – A Comparison
Both the SMA method and price channel described above use indicators to clarify price action, but in different ways.
By comparing them, we are able to understand both methods better. The SMA method focuses on finding lack of momentum on pullback to identify new trends. The price channel method finds powerful moves that lift the market beyond the price envelope to start new trends.
2. Price Channel with Price Action
In this second technique, instead of using a simple moving average of bar closes, we use two moving averages of bar highs and lows. The resulting lines form a price channel to help us clarify the intraday trend.
Since the indicator in this case is more complex, the interpretation rules are simpler. When two price bars stay completely above the channel, we define a bull trend. When two price bars stay completely below the channel, it’s a bear trend.
The example above shows how the price channel helped to define a change of intraday trend.
Although the market has risen sharply since this session opened, according to this method, we could only define a bull trend at this point.
These two bars changed the intraday trend to bearish.
There are different ways to build a price channel. Other than using moving averages of bar highs and lows, you can also use Keltner Bands and Bollinger Bands. As these price channels are constructed differently, you will need to adapt the rules for defining the intraday trend.
Finding the Intraday Trend – A Comparison
Both the SMA method and price channel described above use indicators to clarify price action, but in different ways.
By comparing them, we are able to understand both methods better. The SMA method focuses on finding lack of momentum on pullback to identify new trends. The price channel method finds powerful moves that lift the market beyond the price envelope to start new trends.
Continued from last post..
3. Higher Time-Frames
The example below shows how we used the hourly bar highs/lows to find the intraday trend for the 5-minute time-frame.
This chart shows the 5-minute time-frame in the top panel and the corresponding hourly chart in the lower panel.
This hourly bar made a lower low and confirmed a bearish intraday trend.
This bar made a higher bar high and turned the intraday trend bullish.
For multiple time-frame analysis, the Triple Screen System in Dr Alexander Elder’s book “Trading for a Living” is also a great starting point. In his solid system, he recommends a factor of five when considering higher-frames. An example would include the 1-minute, 5-minute, and 25-minute time-frames.
4. Trend Line
Price action traders love trend lines. It is useful for both intraday and longer term analysis.
By linking up swing pivots, we get trend lines of varying slopes and importance. Trend lines highlight the market structure of swings and project their momentum and speed.
The basic interpretation of a trend line is that the trend reverses after it is broken. The example below shows how a broken bear trend line hinted at the later bull trend.
his method is simpler in the sense that it does not use any indicators and focuses on one time-frame. However, to make it work, you will need to master the skill of drawing trend lines.
No method of determining the intraday trend is perfect. There will always be instances when the market resumes its earlier trend just as we conclude an intraday trend reversal. There will always be cases when we confirm a trend only when it starts reversing.
Each of the four methods above has its specific drawbacks.
For the two methods that rely partly on indicators we need to decide on the look-back period of the indicators. Without a sensible look-back period, the indicators will add little value to our trend analysis. The suitable value depends on the market volatility which is ever-changing.
The higher time-time method then depends on our choice of the higher time-frame. Which higher time-frame reflects the intraday trend? The half-hourly and hourly charts are popular among day traders. But forex traders might prefer the 4-hour time-frame.
As for the trend line method, the clear challenge is in drawing meaningful trend lines. If we draw trend lines indiscriminately, we will find more whipsaws than trends. The crux is to draw consistent and relevant trend lines.
Source: www.tradingsetupreview.com
3. Higher Time-Frames
The example below shows how we used the hourly bar highs/lows to find the intraday trend for the 5-minute time-frame.
This chart shows the 5-minute time-frame in the top panel and the corresponding hourly chart in the lower panel.
This hourly bar made a lower low and confirmed a bearish intraday trend.
This bar made a higher bar high and turned the intraday trend bullish.
For multiple time-frame analysis, the Triple Screen System in Dr Alexander Elder’s book “Trading for a Living” is also a great starting point. In his solid system, he recommends a factor of five when considering higher-frames. An example would include the 1-minute, 5-minute, and 25-minute time-frames.
4. Trend Line
Price action traders love trend lines. It is useful for both intraday and longer term analysis.
By linking up swing pivots, we get trend lines of varying slopes and importance. Trend lines highlight the market structure of swings and project their momentum and speed.
The basic interpretation of a trend line is that the trend reverses after it is broken. The example below shows how a broken bear trend line hinted at the later bull trend.
his method is simpler in the sense that it does not use any indicators and focuses on one time-frame. However, to make it work, you will need to master the skill of drawing trend lines.
No method of determining the intraday trend is perfect. There will always be instances when the market resumes its earlier trend just as we conclude an intraday trend reversal. There will always be cases when we confirm a trend only when it starts reversing.
Each of the four methods above has its specific drawbacks.
For the two methods that rely partly on indicators we need to decide on the look-back period of the indicators. Without a sensible look-back period, the indicators will add little value to our trend analysis. The suitable value depends on the market volatility which is ever-changing.
The higher time-time method then depends on our choice of the higher time-frame. Which higher time-frame reflects the intraday trend? The half-hourly and hourly charts are popular among day traders. But forex traders might prefer the 4-hour time-frame.
As for the trend line method, the clear challenge is in drawing meaningful trend lines. If we draw trend lines indiscriminately, we will find more whipsaws than trends. The crux is to draw consistent and relevant trend lines.
Source: www.tradingsetupreview.com
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