Currency Pairs: Any
BACKGROUND OF THE BEST TREND TRADING STRATEGY
You will see that there are times that the market is really trending nicely, either up or down, price will head back up to retest the support level that was broken only to fall down in a downtrend situation.
Similarly, price will head back down to test the resistance level that was broken only to head back up bouncing from that level in an uptrend situation.
Knowing this characteristic of price action, we can make trading rules around such trending situations.
So the main concept of the best trend trading strategy is support and resistance trading.
DEFINITION OF SUPPORT LEVEL
A support level is the level at which price bounced up from after it had been going down for some time. You will see support levels a “valleys” on a price chart.
DEFINITION OF RESISTANCE LEVEL
A resistance level is the level at which price bounced down from after it had been climbing up for some time. You will see resistance levels as “peaks” on your price chart.
With this system, there’s a slight twist:
- when the price breaks a support level, price will continue falling down but then there will be times when it will go back up to the previous support level that it just broke some time ago. Now this previous support level at times can act as a resistance level from which price can hit it and fall back down again.
- the opposite is also true…when price breaks a resistance level and climbs higher, there will be times when it will fall back down to the previous resistance level that it just broke some time ago. This previous resistance level at times will act as a support level from which price can bounce back up from.
If the market is trending nicely(strong trend), you can see these support and resistance levels being formed and then broken only to have price come back to them later to retest these levels that have been broken..
So knowing how price behaves when this happens, trading rules are made based on that.
The chart below give you more clarity regarding this.
TRADING RULES FOR THE BEST TREND TRADING STRATEGY
- For a sell trading setup, firstly a support level must be broken first and then watch price move down for some time and but then it will eventually start to climb up again to test the broken support level.
- You can either place a sell limit order, an instant market order or use a sell stop order to get into a trade at this support-turned-resistance level.
- For your stop loss, place it 3-5 pips above the candlestick with the highest high in this broken support level.
- For take profit target, measure the distance in pips between the where the support level down to where price starts rising back up to test the broken support level and use that pips and multiply by 2 or 3 and that gives you how many pips of profit you need to set at whatever price level it falls to.
- For a buy trading setup, firstly a resistance level must be broken and price will move up for some time but then it starts to fall back down to test this broken resistance level.
- You can either place a buy limit order, an instant market order or use a buy stop order to get into a trade at this resistance turned support level.
- For your stop loss, place it 3-5 pips below the candlestick with the lowest low in the zone of the broken resistance level.
- For take profit target, measure the distance in pips between the where the resistance level up to where price starts falling back down to test the broken resistance level and use that pips and multiply by 2 or 3 and that gives you how many pips of profit you need to set at whatever price level it falls to.
ADVANTAGES OF THE BEST TREND TRADING STRATEGY
- you can see this price action pattern play out in all time frames and if you know what you are looking for.
- its easy to see and understand and implement with really simple trading rules.
- if you use larger time frames, the more pips you earn as the risk to reward is also really good for this trading system.
DISADVANTAGES OF THE BEST TREND TRADING STRATEGY
- all forex strategies have their weakness so this one too will have its days where price will not behave in such a way to give you profitable trades so expect such days when you are using this trading system.
- there will be times that price will not come and retest those support and resistance levels it broke even though you might be waiting for that to happen.
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” – Robert Kiyosaki
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