This is where you define the dominate price trend and trade in that direction. Trend following was made popular by the Turtle Traders and although buy and hold has lost its popularity, trend following is still very popular. As with any Forex trading system that is on this website , you must back tes t to ensure you understand the system fully. The great thing is that your trading is not based on forecasting. Trend following is a reactive form of trading because in the end, the only truth is the price.
The first part is trend. Every trader needs a trend to make money. We use this word because trend followers always wait for the trend to shift first, then follow it. The Supertrend trading system seeks to capitalize on the long term trend using shorter term trends to get on board for the price move. The Supertrend Indicator can be downloaded for Metatrader by clicking here. We are using the Average True Range indicator to determine our stop loss. This Forex trading system is simple in execution but can be very difficult depending on your ability to manage risk and losing trades.
All trades will not play out like this and there will times when you are trading in choppy market conditions long before price registers whipsaws along the SMA. We can make this trading strategy even simpler by using the supertrend indicator on two time frames. For a daily trading chart, we can use the supertrend trend determination on the weekly. This is the daily GBPUSD chart and the green line indicates that the weekly trend is up according to the supertrend indicator that turned where the green line is.
This daily chart has already turned green before the previous week closed that gave us the signals for long trades only. The yellow line indicates a potential resistance point that is in place before the weekly trend is up.
We can look to get in sync with the chart condition and take a long trade when price breaks the resistance area on close. The issue now is that entry candle is huge and while you can make a rule in regards to large candlesticks, for this example we will keep in line with the rules. This trade is stopped out on the extreme retrace that pulls back for a test of resistance potential support for a pip loss. We can re-enter when supertrend turns green at 1.
Our stop using the 1. You can see one of the main disadvantage of the Supertrend strategy on the last chart. The pullback in price has seen a few hundred pips disappear.
Not many traders can stand seeing profits evaporate like that. You MUST have strong risk management skills or you will quickly eat your account into zero. Greed — Seeing all the pips accumulate and how many things the winnings can buy.
The trend is confirmed and you enter what may become a trend that lasts weeks, months, or even years. Hope you can see the massive potential in this trading strategy. Remember we used the setting of 8 and 1. We never changed those inputs when using the multiple time frame approach. If we used the default settings of 10,3, and kept the trading chart at 8, 1. Supertrend Indicator — Settings of period 8 and multiplier of 1.
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