Trend is your friend strategy!
Exponential Moving Average plus Stochastic confirmation plus price action reconfirmation.
Hello everyone! Since I love trend trading and I’m really big fan to the statement “Trend is your Friend” today I want to show you another trend following strategy. I have seen similar strategies back in my Forex days but not exactly. I made some developing changes and back testing. And I discovered that if, used carefully and correctly this strategy can bring above 80% accuracy in normal week.
To apply this strategy we need few rules and indicators:
- Exponential Moving Average period of 120
- Exponential Moving Average period of 50
- Exponential Moving Average period of 16
- Stochastic 3,5,5
- We are watching 5 minute chart!
- We have good range between the EMA’s
- Market is making lower lows and lower highs for downtrend and higher highs and higher lows for uptrend.
How to use this trend following strategy and how to understand if signal is fake and we need double confirmation from price action candlestick pattern!?
The examples will be for downtrend market you can imagine that opposite situation is for uptrend!
First we need to be sure that we are in trending market. We are going to determine that with our EMA’s. If EMA period 16 and 50 are below 120 with nice range between them we are in downtrend. And vice versa if EMA period 16 and 50 are above 120 with good range between them we are in uptrend.
Second we need to find good entry point when the market is making a pullback. When price reach and puncture EMA 16 we are going to confirm that stochastic is above the 50 level (stochastic will help us dodge fake signals). IF the 2 rules are in hand we enter PUT for 30 minutes with the trend’s direction. You can see the snapshot from my Meta Trader 4 example below!
Bad scenario and what to do if we find ourselves in bad situation:
Of course every trader have bad trades! I will give you some heads up of what to do if we see that our trade is going in the opposite direction. If we already entered the PUT trade but we see strong closure above our 16 period EMA, we are going to get scared If the market is reversing. The best option we have is to seek for any price action reversal pattern: dogi, engulfing candle, reverted hammer and more. So what we are going to do is wait for the next 5 minute candle and see if she is going to re-confirm our signal if not you can simply FENCE safe the trade or just sell it for lower price.
Be sure to avoid trading with this strategy 30 min before major news event and post news trading is possible if, news results and trend are going in same direction. Also, don’t forget to back test the strategy and use it on DEMO account! Only if you prove good consistent result you go with your real money account!