Trend Catcher Forex Trading Strategy
In theory, trend trading is easy. All you need to do is keep on buying when you see the price rising higher and keep on selling when you see it breaking lower. In practice, however, it is far more difficult to do this successfully. The greatest fear for trend traders is getting into a trend too late, that is, at the point of exhaustion. Yet despite these difficulties, trend trading is probably one of the most popular styles of trading because when a trend develops, whether on a short-term or long-term basis, it can last for hours, days and even months.
“Price always moves with the trend”
Here we'll cover a strategy that will help you get in on a trend at the right time with clear entry and exit levels. This strategy is called Trend Catcher.
Trend Catcher is a strategy that detects optimal times to buy dips and sell peaks to
catch new-forming trends. The strategy is simple but very powerful and is based on
Moving Average Crossovers and the MACD indicator.
The Crossover Trend Detection System alerts us of optimal times to enter trades, as
well as when a trader should potentially exit trades to optimize net gains. The strategy
is used primarily with the 15 minute, 30 minute, 1 hour, 4 hour and daily time-frames.
With this system, you can take advantage of little trends and big trends by entering
positions immediately after a “moving average crossover”, giving you an opportunity
to minimize your risk while giving yourself an excellent opportunity to scalp pips out
of the market as the price moves in the new trend direction that has been newly
established, as well as catch big moves that can generate hundreds of pips.
It’s this awareness of how the market continually changes trend direction, which
inspired me to create a system that identifies entry points with a high probability of
success. It also provided me with the opportunity to scalp pips from the market with
very little risk exposure to my account.
This system can generate excellent trade opportunities for you, which you can take
advantage of time and time again. The Trend Catcher is simple to use and utilizes two
popular indicators that enable you to:
1. Identify potential changes in the trend
2. Take advantage of high-probability entry points
3. Minimize your risk with optimal stop loss levels
Moving Averages are popular indicators for trading because they accurately represent
the average of price over the last set number of bars. The smaller the number of bars,
the faster the Moving Average will respond to the current price. The greater the number
of bars, the slower the Moving Average will respond to the current price.
The Moving Average Indicators accurately represent the average of price over the last
set number of bars and indicates whether the price, on average, is rising or falling.
There are several possible settings available for Moving Averages and although Moving
Averages can be used in different forms with 3, 4 or more Moving Averages, all using
different settings on the chart simultaneously, in this system, we are using only 2
Moving Averages; a 7 period moving average & 21 period moving average, both based
on the close price.
The easiest manner in which to use Moving Averages is to judge the slope of the
Moving Average. If the slope is upwards, then while the price closes above the Moving
Average, it is believed that price is being support in an upward trend. If the slope is
downwards, then while the price closes below the Moving Average, it is believed that
price is under pressure in a downward trend.
However, in this system, we are particularly interested in the exact time that the trend
is potentially changing. In other words, changing from an uptrend to a downtrend, or
changing from a downtrend to an uptrend.
To determine this event, we use a specific point called The Moving Average Crossover
(the “crossover”). This is the point when the fast moving average crosses the slow
moving average. It is this point that provides traders with the opportunity to catch a
movement from the inception of a new trend.
When the fast moving average is below the slow moving average, the price has moved
from being supported to being under pressure.
When the fast moving average is above the slow moving average, the price has moved
from being under pressure to being supported.
The following is an example of an upward trend that was confirmed upon the Moving
Average Crossover with the Fast Moving Average crossing over the Slow Moving
Average. The upward trend remained intact while the Fast Moving Average remained
above the Slow Moving Average, with the price being viewed as supported.
The slope of the Fast Moving Average is strongly upward at the time of the crossover
and the price stays above the Slow Moving Average line for most of the time, although
it touches and bounces off it a couple of times throughout this move, using the Moving
Average as a line of support.
The following is an example of a downward trend that was confirmed upon the Moving
Average Crossover with the Fast Moving Average crossing below the Slow Moving
Average. The downward trend remained intact while the Fast Moving Average
remained below the Slow Moving Average, with price being viewed as under pressure.
The slope of the Fast Moving Average is strongly downward at the time of the crossover
and the price stays below the Slow Moving Average line for most of the time, although
it touches and bounces off it once throughout this move, using the Moving Average as
a line of resistance.
MACD (Moving Average Convergence Divergence Oscillator)
The Moving Average Convergence/Divergence Oscillator (MACD) is one of the simplest
and most effective momentum indicators available. It was developed by Gerald Appel
in the late seventies and it's still one of the most popular and most used indicators.
The MACD Histogram are the vertical bars and is used in conjunction with the Moving
Average Crossover to determine valid changes in trend.
The black line that follows the histogram’s movements is called the Signal Line and
some traders like to use this as further confirmation but for this system, it is not used.
The Trend Catcher MACD Indicator builds on the power of the original MACD Indicator
by adding a simple-to-use colour histogram that accurately represents swings in price
on a dynamic basis. Since this system primarily uses the MACD Histogram, we've
developed it so that it displays as following:
When the Histogram is moving up, it will turn green
When the Histogram is moving down, it will turn red
The MACD settings we use is;
Here's a closer look at the components of the Trend Catcher MACD:
The Zero Line is the invisible horizontal line that separates up and down histogram
The Histogram is the green and red bars that represent price and their nature relative
to the average highlighting price moves in that direction.
The Signal Line is a representation of average price.
A guideline on how to interpret the MACD is as follows;
When the histogram bars are below the Zero Line, the price is considered to be
under pressure and potentially falling.
When the histogram bars are above the Zero Line, the price is considered to be
supported and potentially rising.
Green Histogram Bars below the Zero Line represent a move up, contrary to
price being under pressure and can be used to detect counter up moves.
Red Histogram Bars above the Zero Line represent a move down, contrary to
price being supported and can be used to detect counter down moves.
Congratulations on finishing this report on the Trend Catcher. You are now on your way to using Trend Catcher for your trading in identifying excellent entry points within existing trends.
Remember; stick to the rules, use good money management and be consistent.