3 Ways to Trade the Trend
These are VERY HAPPY traders. Why?
Because they trade with the trend. Their hit rate is high and they are successful.
Maybe our title should read 3 Ways to Trade the Trend Which we use at Black Dog - it would be more precise as we very often use all three together. But before we go into details into how we set about our Trend Trading it may be a good idea to state the obvious in that there are many traders who trade against the trend with the result that their hit-rate drops dramatically.
Now, call me an old stick-in-the-mud, but surely it would be better to save that cash which has disappeared in those losses, and save it for a trade WITH the trend which has a far better chance of success. I do speak from experience. Concentrate on building your account.
We all know that a very high percentage of traders lose. That is a given. BUT WHY?
In many cases it is because of the usual suspects which hang over a trader like a dark cloud:
Don't be one of them. No sir..!!
Add some structure to your trading. A semblance of organisation at the very least.
Break your trading down into its constituent parts and work on each one to see how you can improve and do things better. This is all done for you at Black Dog so if you want to improve your trading it is the place be. Most definitely.
In the meantime we can look at one aspect of trading. It's one of the most important but sadly it is one that is not followed as diligently as it should be.
Let's see how Black Dog could help in this situation because everyone says to trade with the trend but not many actually do it.
Once you have solved how you are going to trade the trend then you will not have won the war, but you will have won a battle. Although it won't solve your other problems at least you have tackled one and are now ready for the next. There are many battles ahead and if you go about each one in a similar vein then things will start to look a little rosier.
This will usually manifest itself in a slight increase in the number of winning trades that you enjoy. Each aspect, each successful battle that you improve upon will keep increasing those winning trades.
You will be starting to get the odds more and more in your favour. Yes, there are often good trades against the trend and I used to trade them but guess what? My account DID NOT improve because of it. I was more or less standing still. Two steps forward and two back. I was wasting my time.
Don't fight the trend, but DO keep the odds stacked in your favour - it is the only way.
Just for your information - many traders have contacted me with regard to trading the M1 (1 minute) time frame and we have devoted four modules just on this subject. It appears that there are many traders who prefer this time frame. I myself have taken a very strong liking to it and trade the Dax and NASDAQ every day. Trading with the trend on this time frame is a MUST DO action.
Nevertheless, no matter what time frame that you prefer please look to trade with the trend.
My miniscule retail trading account
It's a fact. The forex market, and indeed any other market, are trading in millions and millions of dollars every trading day.
With that in mind, why should I attempt to trade in the opposite direction to where millions of dollars are heading? I would be stupid to do it.
But that is what I used to do. And lost big time. Read it and weep. I was always looking to get into a trend reversal right at the beginning and boy did it cost me. It really is a fool's errand.
My iddy-biddy little trade means nothing in the grand scheme of things - a drop in the ocean. But I now trade WITH the big boys, instead of against them. Ride the wave.
If I want to make some money at this game then I MUST go the same way as the big boys. The thing is, it is not too difficult to follow them either. Of course we still have losers but they are outnumbered by the winners. The losers are fairly small by comparison to the winners.
This does not matter which time frame you want to trade - if you ALWAYS go with the trend then you will begin to enjoy your trading.
So what are we talking about here?
If you have all these three on your chart it is very difficult to trade against the trend. Especially when you take into account the next higher time frame too. There is a lot of money to be made trading the markets and when done correctly it becomes easier too so why make it difficult for yourself?
Let's take a quick look at each one:
1. The Black Dog Channel
It really is dead easy with the channel. If they are green then you are looking for long trades, if red then look for shorts. The chart above is of the EURUSD M15 time frame - when the channel turns red I could jump down to the M5 and start selecting my trades with confidence.
The channel tells you in which direction THE MONEY is going. Simple. Now just follow the money.
DO NOT take the channel lightly - in my view it is the best indicator in the universe. For another blog post on a similar subject please go here.
You may use any pair or index for this little tactic. It is easy enough - define the trend on the higher time frame, the pop down to your trading time frame and look for entries. You now know that you are trading with the trend. Super!!
Wait - it gets better....
2. The Black Dog Arrows
Our arrows are also colour-coded - red for the trend turning down, and blue for an up-trend. All so very easy to follow leaving no room for error.
So how good would it be for you if your charts gave an alarm every time there is a change of trend?
This is precisely what Black Dog traders hear when the trend changes, allowing them to drop down to their trading time frame, trade with confidence, and look for entries as per usual,
From the red down arrow on the chart above it looks as though there were at least four good short signals on the next lower time frame. Beautiful. Possibly two excellent long trades after the blue arrow.
Obviously, we don't get this type of trading every day - but not far off!! If we set about our trend trading in the direction of the higher time frame trend, but on our normal trading time frame, this will give plenty of trades with being successful. It's then just a matter of managing those trades and keeping any losers to the small side.
If you utilise Black Dog Trade Management (Module 6) then you will be managing those trades in a professional manner. Sounds good to me.
Could it get any better?
3. Our Trend Identification tool
This is where it gets very interesting. By having yet another visual aid on the chart it makes for even more confident trading.
I am no Hemingway or Shakespeare, I may struggle to get my message across - but I think you will understand what I am rabbiting on about.
This final tool places a coloured vertical line on the chart so from that point there is absolutely no way that you should be trading against the trend. (And losing money).
The chart below is of the Dax M15 showing our BDCA in action - these vertical lines are placed automatically and with an alarm if you so wish.
A blue vertical line appears - LONG TRADES ONLY FROM THIS POINT.
Similar with the red.
You may trade this time frame although I prefer to drop down to the next. Whatever suits.
I have transferred those vertical lines from the above chart down to the M5 below. I certainly wouldn't be trading right on the London open which probably had a news announcement to go with it. Too volatile for me.
But I hope you can see how the channel, arrows, and the verticals can help in keeping you trading in the correct direction. For example:
TRADE LONG after a blue vertical, after a blue arrow, and above the channel if blue.
In the same vein, the red vertical Down line from the M15 shows short trades on the M5 in the chart below.
If you decided, for some utterly strange reason, to go against our trend-trading tools and take a long position on that chart below, well....... you can see the consequences..!!
We now have three great methods to keep us with the trend. We actually have a fourth but I must keep that for our members. Is it as good? I think it's better.
Every trader knows that trading with the trend is the most profitable way to go about your trading - but not many do it. In fact, there are not many who can actually identify a trend whereby their trading is more akin to gambling.
In the long run there can be only one outcome if this is the case. They may get lucky once or twice but overall Mother Forex will get them, and big time. The shark-infested waters of the trading world will soon have that account.
But of course we are wiser now. We can identify the trend and trade with it, I now trade with the big boys. Some traders have problems identifying, and then trading with the trend, but at Black Dog - not so.
Black Dog will help you with every aspect of your trading. You only need ask.
Thanks for taking the time to go through this blog post, I just hope it helped in some small way.
Let me know what you think down below.
See you when the market opens ...