Trend Following System
Trading forex can be time-consuming, especially if you have to do things manually. That means you have to sit in front of your computer monitoring market trends all day. However, those who may not have the time need to develop a trend following system that would enable them to profit from the market smartly.
What is a trend following system?
A trend following system is a form of strategy that a trader develops to enable him profit from significant moves without having to manage positions on an intraday basis. And it just needs a little amount of maintenance daily but assists people with a full-time job to make profits even though they do not have much time to dedicate to managing their trades.
A trend following system has the goal of capturing trends to make profits and minimize losses. For a trend follower to have the opportunity of capturing a trend wherever it happens, he has to trade on an expanded list of assets in various markets. The best trend following system can work across numerous items on your watch list. Therefore, a good trend following system should backtest signals on every item on their watch list. There are many tools to help you with this but the advanced traders always prefer a mt4 trend indicator.
The trend following system works because emotions, fear, and greed decide the direction of the markets. Either side can create a trend, which the trend followers can easily take advantage of to make profits.
Trend Following Principles to Help Win the Market
Five main trading principles help successful Trend followers to take hold of the market and earn enormous profits. When fully followed, the principles will increase your chances of making a profit and reduce the chances of losses. If you are a trend trader then its important to use the best forex reversal indicator.
Here are the principles:
Risk only a fraction of your equity
You have a trading system that wins 50% of the time with 1:2 risk-reward.
You also have a hypothetical outcome of L L L L W W W W.
Should you risk 40% of your equity, your money would be gone by the third trade (-40 -40 -40 = -120%).
But risking just 1% of your equity, you will make a gain of 3% (-1 -1 -1 +2 +2 +2 = 3%).
Even if you have a system that wins you consistently, it alone cannot make you succeed in the long term. You have to combine a winning system with proper risk management. If your risk of ruin goes too deep, you may never be able to recover from it.
Losing 50% of your capital would require that you make 100% to breakeven. If your winning ratio is less than 50%, you should risk only a fraction of equity.
Buy low and sell high
You went to the grocery shop to buy pizza, and you are told that a pack goes for $6. So, you purchased some for a sumptuous meal.
The following day, you return to the same shop, and you are told that pizza now goes for $12 a pack. What you do, buy? Perhaps, you wouldn’t want to buy it due to its high price. You’d instead wait for the price to drop, or better still, get other substitutes.
How does this apply to trade? The same attitude used in buying pizza is also brought over to trading.
Every trader wants to make gains, and one way to ensure you don’t run at a loss is to buy low and sell high.
Just follow price
When trading, don’t try to a “Mr Right.” You may derive some pleasure from knowing that you are always right in most of the decisions you take. However, in trading, you need to be objective; otherwise, you will make terrible mistakes that could cost you a fortune.
Overconfidence will make you lose the neutrality of the market. And this can lead to errors such as:
1. Refusing to take a loss because you don’t want to accept failure.
2. Averaging into your losses because you can have it “cheaper” now.
3. Revenge trading in trying to make back your losses.
What is the best advice for you?
As a trader, the best thing to do is to follow the price.
If you observe that the price is forming higher lows, with resistance breaking regularly, there is the likelihood that it is an uptrend. Be prepared to long.
If you observe price forming lower lows, with support breaking regularly, the odds are that it is a downtrend. Be prepared to short.
Trade all markets to increase your chances of capturing trends
It is advisable to study a variety of markets to increase your chances of capturing trends since markets spend more time-varying than trending. Trend followers usually try all forms of trade, including indices, currencies, bonds, agriculture, and energy.
Know when to exit even when making a profit
Humans tend to be greedy when it comes to money. As a result, a trader might want to stick to the market and make more gains, even when he is already assured of some profits. Refusing to exit the market after taking little profits can be your undoing. If you pay too much attention to profit, you may never know when the market begins to go against you.
Therefore, before commencing a trade, you should have an exit point and ensure you stick to it even if there is so much profit.
Trend Following Trading Strategy
Having understood the five trading principles to follow, you need to use the information in developing a trading strategy. So, you have to answer the following 7 questions:
1. How much are you willing to risk on each trade?
2. Which timeframe do you want to trade?
3. Which markets are you trading?
4. What conditions are you using for your trading strategy?
5. Where will you enter?
6. Where will you exit if you are not correct?
7. Where will you exit if you are correct?
You have to decide the timeframe that fits your personality and programs. If you are busy during the day, it would be better to trade the 4 hour and daily charts.
Risk only a fraction of your equity on every trade to overcome the natural drawdown. Don’t allow your losses to exceed 1% on each trade.
Trade different sectors
Spread your net wide. Trade about 60 markets from the following 5 sectors:
3. Agriculture commodities
5. Non-Agriculture Commodities
Conclusion for Trend Following System
Trend Following System is a tested system that helps you monitor and analyze market trends and make a profit, even as you minimize losses. You need to develop and depend on a strategy that works for you based on your personality type and schedule.
On our platform, we have several TOP 10 MT4 indicators and tools that are tested and proven to use. If you are keen on upping your trading game, try and make use of any of them through this link, to help you achieve your dream of becoming a trading professional.
And do leave us with your feedback about Trend Following System below in the comment section on our Best MT4 Indicators website.