Follow the trend

This is a method based on the classic saying "The trend is your friend". I have used it for a long time, and most of the time I get nice profits. I mainly use it on GBP/CHF 30 min timeframe but it's possible to use it on every pair and timeframe that suits you.

Pick up your favourite chart application and place three moving averages, 30, 50 and 100. We use these only to identify a healthy trend. If they are all pointing in the same direction with an even gap between them we have spotted a nice tradable trend.

Look at the picture below to see a healthy trend.

We can all see where the price is going, YES it's going down. So we are only looking for Short entries for this pair.

Look at the picture below to see an unhealthy trend.

That's not tradable according to this method. You see all moving averages are going up and down and we do not have a clear direction.

Knowing in what direction we are looking for entries are reducing our losses, and is better for our mental well-being. =)

We know the trend, now what?

Ok, lets say we have located a healthy and tradable trend, what do we do? Be patient! After we have located a trend, we have to wait for the price to stall and find the most obvious levels it has difficulty breaking. That could be a support/resistance, fib line, pivot point, trend line or round number.

Often the consilidation creates very good supports/resistance lines and/or trend lines.

See picture below: 30 min chart off EUR/AUD

We see a very healthy trend, with a stall creating a nice trendline (black line). We also see an obvious support (orange line). When price decides to close above the trendline, there might be a buy opportunity. But hold on!

Risk / Reward

Before we enter long, we have to know our risk / reward ratio. It's VERY important you calculate your Risk / Reward ratio before putting in your money. My R/R ratio always is below 0.5, if I risk 100 pips I have to be able to make AT LEAST 200 pips. If not, it's a no trade for me.

First we have to decide where to put our Stop loss. Where would you put it? My stop loss in this trade were some pips below the support line (orange), meaning a 50 pips risk.

To calculate the possible reward we zoom out to the daily time frame and find this setup:

Try to find a possible turning point, where the currency pair is going to have difficulty breaking through. I often choose support/resistance line which have held three bounces or more. It's the orange line at 1.6935. This trade actually has the chance to go from 1.6732 to 1.6935 which is a 203 pip reward.

Risk: 50 pips

Reward: 203 pips

Our Risk / Reward ratio => 50/203 = 0.24 , looking good so we enter long.

Risk no more than 3% of your account in one trade!

Profit

Ofcourse our Reward target got hit and we had a 203 pip profit!

I really like this method, because it keeps us out from bad trades and we get amazingly good entries.

Demo trade this until you feel sure it is a method for your. We are not responsible for any losses caused by following this guide.