How to trade the trend

Hmmm, how to trade the trend? An age-old question?

Everyone says that you must 'trade with the trend' and that the 'trend is your friend until it bends' and a host of other super-powerful sayings that no-one listens to. How often do you make trades that are NOT with the trend?

I still do it occasionally when I have a mind-freeze, and you know what - yep, it costs me! Will I ever learn?

But the fact remains that if you want to be successful at forex or any other trading then you need to be trading with the trend so that the majority of your trades have a good chance of success. It would be silly to think that every trade that you take with the trend will be a successful trade.

Forex, and other trading, just does not work like that, BUT your chances of success are increased as opposed to counter-trend trading. It is definitely no guarantee of a winning trade but it will sure stack the odds in your favour over the long run, say a series of trades. Your hit rate will be higher.

If you trade with the trend (as opposed to trading against it) then you are ostensibly trading with the majority of other traders too, which makes it the safer strategy to 'go with the flow' - this means that you are also trading where most of the money is going too. 

Consider that if the trend is up then most traders, but not all of them, think that there are higher prices ahead so are willing to pay more to own whatever it is that you are trading. If most are willing to pay more then stay with that trend.

At Black Dog we trade the mini trend and usually on the lower time frames, hence the name of our second strategy - the MTF2 - Mini Trend Finder 2. We used to have MTF1 and MTF3 but merged them into one strategy because of info overload and to keep things less confusing than forex already is.

One point that I have always maintained, and I stick by it is 'if every other trader is using something, then I definitely will NOT' - but why is this? Because they are all losing and big time. We all know that the vast majority of retail traders are losing so it makes very good sense not to do, and not to use, what they are doing and using. Think about it, don't you agree?

For example - trend lines.

Many traders use trend lines but what good it has done them I will never fathom. I have personally found them to be a waste of time. A trendline is a straight line - but I have never seen a market move in a straight line.

Most people place trend lines after the fact and usually when it's too late to do anything about it, making them pretty much worthless.

Moving trend line anyone?

It is much better to have a MOVING trend line just like the ones we have at Black Dog. One that moves automatically with price and there is no need to place it yourself. At Black Dog we have them colour-coded to suggest long trades if they are blue, or short trades if they are red.

Our trend lines move automatically with price and there is no need to place them yourself. They change colour automatically too.

How easy is that?

We actually use a pair of trend lines that forms a channel where we find that it is much safer to trade on either side. This channel tells us where most traders are putting their money.

A blue channel suggests that there may be higher prices ahead

A red channel suggests that there may be lower prices ahead

It would then be the better option to go with the flow, to trade in the same direction that most of the money is taking. Your trade would then have a much better chance.

Let's take a look at this super-duper Black Dog trend line.

Well that's easy enough to understand but how good are they?

I think that you will see for yourself quite soon. I have used these 'moving trend lines' for many many years now with absolutely no complaints. They look after me very well indeed when it comes to:

Of course trading against the trend can be lucrative and I'm sure that there are many fine systems out there though they are not for me as I don't like to go against the flow. Trading is a difficult enough business where your account is under attack whenever you enter a trade - why make it easy for Mother Forex?

Let's add some candles to the mix and see how the channel can help us. This is actually the GBPUSD M15 chart.

Ahhh now we are getting somewhere...

We have now identified the trend but ONLY for the time fame we are looking at ie, the M15 trend. The trend may be different on higher time frames. The up move on the chart above started in earnest at the London open, and with care and good trade management could have yielded 40 pips. Not to be sneezed at for sure.

We go into Trade Management in great detail in Module 6 in our course.

The long red candle was a news announcement at 10:30 London time and we would have avoided that - just too risky. But our 'trend lines' then suggested short trades after that news with a two-legged move of 60 and 50 pips. Very nice indeed..!!

How would you feel if you managed just half of those pips? Still very good trading. But there is a little more to come yet with our little method.

This is just one of several methods that we have to assist us in identifying the trend. We have other tools to help us in our trading decisions - warning alarms, arrows, and indicators - but quite often simply trading in the direction of the next higher time frame can be enough.

The next higher time frame

If, on the next higher time frame the channel is blue, or price is above the channel, then consider looking for a trade to the long side on the M15. Vice versa if red, or price is below.

Consider the next chart which is the H1 time frame:

The area inside the dotted lines covers the same area as the M15 chart up above.

So, if the H1 time frame agrees also then we are good to go with added confidence. This can make all the difference. Trading multi time frames just adds that edge to your trading that many traders lack. Be sure that at Black Dog we have alarms to let us know what is happening on the higher time frame without even looking at it.

I suppose that I am a bit of a contrarian thinker when it comes to trading but I just don't want to lose like everyone else and I certainly do not want to copy them. Neither do I want Black Dog members suffering the same fate. No sir..!!

Hmmm, one guy hasn't been using the Black Dog channel..!!

To succeed at trading in ANY market then you need to work your edge, you need to go with the flow. For me, the channel is priceless in that it tells me what the majority of traders are thinking AND where most of the money is going for that time frame. This is the first tool in our toolbox of trend identifiers, but we have other superb ones too.

They all tell me which way to trade, then all I need to do is to get my entry spot on. Module 4 in our course delves into this subject in great detail, enabling our members to make sniper-like entries into the market.

If you would like to see what Black Dog can do for you please read our Course Contents page up there in the main menu.

Good luck and happy trading.

Dave

Please let me know below what you think of this particular little tactic of trading with the trend, or you may use something similar. We'd sure like to know.