How to Build a Strategy - traders should look to match their strategy with the appropriate market condition

How to Build a Strategy - traders should look to match their strategy with the appropriate market condition

20 May 2015, 03:11
Sergey Golubev
1
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Many of the most popular indicators can be helpful when designing a trend strategy. And to take technical analysis a step further when designing a trend-trading approach, many traders will look to utilize multiple time frame analysis in order to get multiple looks at a trending market.


When utilizing multiple time frame analysis with a trend-trading strategy, traders are often going to look to the longer time frame to find and diagnose the strength of the trend. This can be done in a multitude of ways. Some traders will prefer to do this without any indicators at all, using price and price alone.

Other traders will look to one of the more common indicators, the moving average. There are a lot of different flavors and types of moving averages, but the goal is all the same – to show us a ‘line-in-the-sand’ as to whether price movements are ‘above-average’ or ‘below-average’ for a given period of time.

After the trend has been recognized so the trader can then plot the entry into the position; and for that, there are a multitude of options available.

Entering into the Trend

There is an old saying that goes: ‘The Trend is your friend until it ends.’

This one line pretty much sums up the quandary that traders are faced with when trading trends. While a bias has been exhibited in the marketplace, and may continue; there is no such thing as a ‘sure-fire trend continuation setup.’ So, when the trend doesn’t continue, the trader is often advised to look to mitigate the loss so that a reversal doesn’t damage their trading account too badly. In an effort to be as precise as possible, many traders will move down to a lower time frame in an effort to get a more detailed look at the move inside of the larger-term trend.

Traders can also look to use indicators to plot an entry, under the premise that the longer-term trend may be at the early stages of its continuation; and can be entered upon with the shorter-term chart. There are numerous indicator options for this premise. Many traders will look to oscillators such as RSI or MACD to trigger the position. Other popular options are MACD, Stochastics, CCI, and the moving average crossover. Traders looking to speculate with the trend want to focus ONLY on signals that move in that direction.


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