FREE FOREX STRATEGIES

Advanced strategy #10 (Trend Line Trading Strategy)

A truly great work has been done by Myronn, the author of the current Trend Line Trading Strategy.
Support-resistance trading, trend line trading, checking higher time frames, money management — the strategy has a concrete-like theory base and a simple implementation — a winning combination, that places it into the category of advanced strategies.

Remember, your feedback, comments and suggestions are always in great demand!

Edward Revy

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Hello all,

First of all, this site is awesome. Edward, you are a great man.

I have been demoing a simple trading strategy for a week (29th September-3rd of October 2008) and achieved almost 200% return on investment in a week with $5000 account and I would like to share it and it would be great to have many involved in testing this strategy out.

I am calling this a Trend Line Trading Strategy and it is based on:

Following the trend.

Heard & read that before a million times? Lol… I cant blame you. But maybe you can learn something extra here.

Do yourself a favour and take a look at a chart and see if you can identify a trend. Is there a main established trend? It is important that you identify the main trend & once that is identified, your trading decisions are based in the direction of the main trend. There are exceptions where you can go against the main trend, but I wont touch on that here. KISS… KEEP IT SIMPLE & SIMPLE.

TIMEFRAMES:
Timeframes suitable for these strategies are the daily, 4h, 1hr, 30mins.

INDICATOR:
I use only 1 Metatrader4 indicator called Swing ZZ(zz for zigzag). It is freely available in the net, just google it and you can download it. Thanks to the programmer who wrote it. This indicator is helpful simply because you can identify previous swing highs and lows which act as resistance & support levels and I think it is a handy tool to use in this strategy.
Swing_ZZ.mq4

So lets get started shall we? I call this trendline trading strategy because it involves drawing trend lines using the swing highs and lows of the Swing ZZ indicator.

SHORT ENTRY RULES:
(a) look at the timeframe you wish to use and identify the main trend. Get the big picture first, that is very important. For me, when I want to trade on the hourly chart, I first check the daily chart and also like to see what is happening in the 4hr chart as well to see if I can spot an obvious trend or channel or congestion happening in the daily and the 4hour charts. I stay out if there is congestion until breakout of the congestion happens and a trend is established. I draw trendlines in the daily or on the 4rhly charts chart then switch to the 1hr timeframe. I identify trends in the hourly and draw trendline(s) as well.
(b) I place a sell stop order, at least 5pips below the LOW of the candle that touches or intersects the trendline. The trendline can be the daily, 4hrly or the 1hr trendline. You must place your order when that candle closes. Why 5 pips? I don’t know, 5 seems like a good number to me… I have five fingers on each arm and similarly for the legs, so 5 is a number I was born with… Put 10 pips if you want. Note you must wait for price to approach a trendline or very near to the trendline before you place your sell stop order.
(c) I prefer to place my stop loss at least 5 pips above the most recent swing high. You should set your stop loss according to your money management calculations and risk tolerance.
(d) I set my profit target just WITHIN the level of previous swing low.
(e) Trade management: as trade moves in my favour, I move my stop loss to at least 5 pips ABOVE each lower subsequent peaks (lower swing highs).

LONG ENTRY RULES:
Just do the exact opposite of short entry.
(1) Set your buy stop order 5 pips ABOVE the high of the candle that intersects the trendline when that candle CLOSES.
(2) I set my stop loss just below the recent low.
(3) I place my profit target WITHIN the level of the previous high.
(4) As trade moves in my favour I move stop loss to at least 5 pips just UNDER each higher subsequent higher swing lows that form.

SHORT ENTRY EXAMPLE:
The attached is 4hr USD/JPY chart showing short trades that could have been taken and would have been very profitable using this strategy.

(all screeshots are clickable)

USDJPY short entry example




LONG ENTRY EXAMPLE:
Attached is USD/CAD daily chart and possible trade entries are shown to give you a visual understanding of how to identify potential trade setup and take them.

USDCAD long entry example




Here is a screenshot of the trades I have taken using the strategy above. I have tried 1 min timeframe, 5 min timeframe and 15mins but towards the end, have tended more toward using larger timeframes like the 4hr, 1hr & 30min timeframe so that I don’t stay glued to the computer all day long.

Attached are account history screenshot of trades taken in two parts as I am unable to take 1 complete screenshot.

Forex demo-trading results

Forex demo-trading results

Wish you all good health.

Cheers

Myronn
email: myronn_s(at)yahoo.com

http://forex-strategies-revealed.com/

Hi Myronn,

This strategy is amazing ,hats off for you buddy.I just want to ask you that i do not have swing zig zag indicator so is there any other substitute?I mean is there any other way to identify swing highs and swing lows ?I hope you will reply soon.

BigPond wireless broadband hmmm... are you from Australia ?

Happy trading

Regards,

Arsalan

Thanks Arsalan,

pls contact me at myronn_s[at]yahoo.com and I will send the indicator to you.

You really dont have to use the swing zz indicator at all in this strategy. But it does make it visually easy for me identify swing highs and lows in the past and based on that draw trendlines.

In answer to your question regarding substitue: the concept of this indicator is very simple, it zigzaps between swing highs & swing lows and if you had to do without this indicator, all you have do do is you draw trendline(s) connecting significant peaks in a downtrend & connect significant lows in an uptrend. the high and and low peaks are easily identified on any chart. At a minimum of 2 "peaks" or 2 "valleys" is required for you to draw a valid trendline. A line of best fit is usually required if you have 3 or more points to conect.

Hope this answers your question.

Yeah, Ausie,,,lol, dead giveaway huh? where else will you find bigpond...???

Cheers

Myronn

Hi Myronn,

Thanks you very much for your quick reply and detailed answer for my question.

Happy trading,

Regards,

Arsalan

Hi Myronn

That's a power strategy! Thanks a million!
As I understood, all your entries are taken on 1 hour timeframe. Is that correct?
May I ask, how do you determine what swings to use (daily, 4 hour, or hourly) for setting stop losses?
Does it depend on the trend line being hit... Or am I mixing things up... Thank you!

Cheers,
Marius

Hi Myronn
Thanks for this great job........u definitely did well here..what i want to ask is that if u get the trend for daily,4hrs,1hr, will u just enter the trade? or u wait for something else? and which currency pair best suit the strategy finally what will be your next step if a candle just break your trend line, i mean will you have to wait for the trend to grow long to have a new and opposite trend line or what?

Bravo Myronn

Regards
Gregg

Hello Marius,

good question.
Regarding entry, I prefer to use the 1hr & 30 mins for the entries.

For stop loss, allow me to give an example here:When I place my sell stop order in the 1hr timeframe, i search for the previous swing high also in the 1hr timeframe and put my stop loss just 5 pips above it. If the previous swing high is just above my entry and my stop loss would be like (20pips) placed just above it, that is good. Ok,the issue is: what happens if the previous swing high is about 100 pips away(that would mean 100pips stop loss right? Can you take that or not? Depends on your risks tolerance & money management rule. When it violates my money management rule, what I do is I switch to a smaller timeframe and that would be the 30min. In there, I look for swing highs that would be much closer to my entry point and and with stop loss that fits my money management and that is where I place my stop loss just 5 pips at least above the previous swing high in the 30min timeframe.

Thats how i do it and i hope you all will experiment and see what fits each one of you individually as traders.

Remember, wait for the price to come to the trendlines before taking any trades, dont take anything in between the major trendlines. Patience is the key.

Regards

Myronn

Hello Gregg,

3 good questions, i try my best to answer them for you.

(1) if u get the trend for daily,4hrs,1hr, will u just enter the trade? or u wait for something else?
Answer: Drawing trendlines helps me spot the trend in the market and I know that as price nears that trendline, it does two things: it bounces off it & is made to follow/obey the overall trend direction or it intersects it and that can signify a new change in trend direction. I place my order as described in the strategy. there is nothing else that i wait for. Pls note that I advice not to use MARKET ORDER entries when prices near the trendlines because ANYTHING can happen there. it can break it & or can be made suject to the trendline. You place your stop orders with the CONFIDENCE that IF THAT TRENDLINE HOLDS TRUE, PRICE WILL MOVE IN THE DIRECTION OF THE MAIN TREND AGAIN. so you do not have to chase chase it, wait for it to come to your stop order.

(2)and which currency pair best suit the strategy
Answer: any currency pair that is trending. stay out of trading if you cannot clearly identify any trends in whatever timeframes you would like to trade at.

(3) what will be your next step if a candle just break your trend line, i mean will you have to wait for the trend to grow long to have a new and opposite trend line or what?
Answer: There will be candles breaking or intersecting the trendline(s) trying to head in the opposite direction to the main trend. many times, these breakout will be false and will eventfully come down and obey the trendline that is why you have to wait patiently with your stop oder on the first candle the intersects the trendline. However, if the trendline is broken and a new higher swing high and higher swing low is made that may signify an uptrend. opposite for downtrend: new lower swing highs lower swing lows. when that happen, cancel whatever stop orders you may have and draw tredlines with in the direction of the new changing market condition and wait for price to come to the trendline(s)

Hope this helps.

Cheers

Myronn

Hi Myronn
Grateful for your detailed explanation. Got it :)
One more humble question, please: this time about profit targets. Same trouble: I enter on 1 hour chart, do I look for a previous swing on 1 hour time frame?

In your examples the charts are 4 hour and daily and profit targets are chosen accordingly. Were those entries taken on other than 1 hour chart?

Thank you!
Wish you all the pips in Forex :)

Marius