Trend Follow Strategy – Tutorial & Guide

The goal of every trader is to achieve the maximum profit with a minimum risk of loss. The best way to catch a trend is to catch it in its early stages and exit at the high or low. The trend strategy is all about recognizing longer-lasting trends and using them for maximum profit per trade.

We describe here a trend strategy based on the signals of 2 different indicators that are installed in almost every trading platform. Therefore, this strategy can also be used by trading beginners and on different time levels. For scalping you use the 1 – 5 minute chart. For trading on a daily basis the 15 minute to hourly chart. The 2 indicators on which this strategy is based are the Bollinger Bands and the MACD indicator.

Advantages of this strategy

✔ Easy to use

✔ relatively good success rate

✔ Indicators available in every trading platform

Disadvantages of this strategy

✖ Take-profit and exit brands are not always clearly definable

Application of the strategy

  1. Determine current trend with the help of the Bollinger Bands
  2. Wait for confirmation by MACD indicator
  3. Wait for confirmation of the Bollinger Bands
  4. If the 2 signals match the general chart, a trade can be opened
  5. Go long when the price touches the upper Bollinger Band which is pointing up (the steeper the rise, the better). With the MACD indicator, the fast EMA (12) must cross the slow EMA (26) from bottom to top.
  6. Go short when the price touches the lower Bollinger Band, which is pointing down (the steeper the rise the better). At the MACD indicator the fast EMA (12) must cross the slow EMA (26) from top to bottom.

Example:

In the example above, we can see the EUR/USD in the 5 minute chart. The fast EMA (blue) crosses the slow EMA (red) of the MACD indicator from top to bottom, generating a short signal. Shortly thereafter the price touches the lower Bollinger Band with a downward direction. Since the MACD is still short at this point, both indicators generated a sell signal and opened a short position. A few minutes later, fast EMA (blue) crosses the slow EMA (red) from bottom to top, generating a long signal. Shortly thereafter, the price touches the upper Bollinger Band, which also shows a slightly rising trend. Thus both indicators generated a long signal and the position was closed again. This trade generated a profit of around +30 pips in approximately 3 hours.

Of course, this strategy can also be adjusted by additional parameters to suit your own needs. For example, a confirmation of the RSI indicator can also be included to make sure that the trade is not entered too early. For a long signal the RSI indicator must rise here, for a short signal fall.

Also the setting of a Take-Profit order would be conceivable for example after reaching a profit of 30 pips. Assuming a stop-loss of always 15 pips, one would have a quite acceptable risk/reward ratio of 2.0.

Warning:

The use of Forex strategies is at your own risk. Broker-Bewertungen.de makes these available to its visitors free of charge and is not responsible for any losses that may occur through the use of the Forex strategies. Please test all strategies thoroughly on demo accounts before using them on a real money account.

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