Trend Following Strategies
Introduction
Trading and investing can be possible through multiple methods and techniques.
One system may give good results another may not, it depends on the trader which system he/she would prefer to use depending upon the situation and price movements.
Hence the skill of the trader is of utmost importance than relying on trading strategies and technical indicators or oscillators.
What is “Trend Following Strategies”?
Trend following or trend trading is a trading strategy through which traders can get trading entries such as buy and sell signals, expecting continuation in the price movements.
Trend following trading is different in the sense that it does not predict market direction.
It demands self-discipline to follow precise rules (no guessing or wild emotions).
It helps in identifying the direction of the move, risk management, and current market volatility.
Traders who employ a trend-following strategy do not aim to forecast or predict specific price levels; they simply jump on the trend (when they perceive that a trend has been established with their own peculiar reasons or rules) and ride it.
How can we use Trend Following Strategies?
For successful trading, one needs to pay serious attention to indicators.
An indicator is a mathematical calculation that can be used with the stock’s price and/or volume to help make investment choices. The result is a value that is used to anticipate future changes in price.
Of course, no single indicator will punch your ticket to market riches. But certain indicators have stood the test of time and remain popular among trend traders.
You can use MFI to know if the stock is overbought or oversold.
RSI can help you plan your exits by reading its overbought and oversold criteria.
MACD can help you confirm your entry if there is a crossover and positive divergence.
Pivot study can help you plan your targets.
ADX can tell you about the strength of the trend.
ATR can help you for Risk Management.
Trend following strategies
1) Moving averages
A crossover of the moving averages indicates an entry which can be a buy signal or sell signal.
Moving average is a lagging indicator and hence the entry & exit can be delayed reducing the profits.
For intraday trading, use Exponential Moving Average with 5-day period and 10-day period.
Use 15-minute candlestick charts. When the crossover occurs and the averages are green, you have a Long entry. When the crossover occurs and the averages are red, you have a Short entry.
For swing trading, use Exponential Moving Average with 10-day period and 20-day period.
Use Daily candlestick charts. Take entry and exit as per the crossovers.
For managing your portfolio, use the Simple Moving Average with a 100-day period and a 200-day period.
Use Weekly or Daily candlestick charts. Take entry and exit as per the crossovers.
2) Supertrend
Supertrend is a very powerful trend following a trading oscillator that helps you to identify the trend of the stock or index. Trading using a Supertrend is simple as it shows you the trend.
You can take a Long entry when the Supertrend turns green and exit when it turns red.
Similarly, you can take a Short entry when the Supertrend turns red and exit when it turns green.
For intraday trading, you can use Supertrend 2 with 10 periods with 10-minute candlestick charts.
For swing trading, you can use Supertrend 3 with 10 periods with Daily candlestick charts.
3) Yogi Express (SuperTrend combination)
Using 2 SuperTrends with different multipliers can be a great trend following the trading technique.
This strategy can be used for intraday and swing trading.
You can use SuperTrend 2 and SuperTrend 4 for this method. When the SuperTrends have a crossover, you get an entry which can be a long entry or a short entry.
You can also vary this combination with SuperTrend 1 and SuperTrend 4
Use 5-minute candlestick charts for intraday and 15-minute candlestick charts for swing trading.
You can use Daily Pivots to plan your exits.
Intraday:
Swing:
4) Ichimoku Express:
The Ichimoku Cloud is a collection of technical indicators that show support and resistance levels, as well as momentum and trend direction. It does this by taking multiple averages and plotting them on the chart. It also uses these figures to compute a “cloud” which attempts to forecast where the price may find support or resistance in the future.
When the price closes above the cloud, you have a long entry if the cloud forecast is green ahead.
When the price closes below the cloud, you have a short entry if the cloud forecast is red ahead.
Exit when price closes in the cloud.
Use 10-min candlestick charts for trading this strategy.
Intraday:
Swing:
5) Renko Express:
Renko express is a trend following trading strategy with a high rate of success.
It uses the Renko chart with Daily ATR having an ATR period of 14 days & an ATR Percentage Period of 5%.
Use SuperTrend while using a 0-minute Renko chart for entry and exit.
You can use this strategy for Intraday and Swing trading, use SuperTrend 4.
