Trend Following – When following the trend is sometimes the best option.
The Trend Following is probably the strategy with the most followers, or at least one of the most followed in binary options. The trend following strategy is so widely used because it’s very easy to understand and put into practice, and above all it does not involve the analyses of many indicators and charts.
First we need to understand what the trend is. Let’s look at the image below. When an asset is moving in a downward or an upward curve during a period of time, then it is in a defined trend, either Long/Call (upward) or Short/Put (downward). Of course, when the market is up and down (typically between supports and resistances) it is in a neutral trend, so the best strategy in this situation is the Support and Resistance Strategy, instead of Trend Following Strategy.
In order to recognize trends that are favorable to trading (upward or downward), it is necessary to use graphs and indicators to start trading. I draw attention to the fact that you should be using periods of time (the bars or candlesticks) of at least 15 minutes to determine a trend. If you view the 1 minute or even 5 minute bars, you can be misled. An asset can have a retracement (temporary reversal in direction) only to gain strength and continue its defined trend.
My advice for the correct use of the trend following strategy is:
> Correct identification of the trend – Using the Stochastic Oscilator indicator, check that the chart of the Day (D) and the 4 hour chart are both in a trend, or if they’re overbought or oversold, they are both overbought or oversold in the same direction. Sometimes an asset has such a defined trend in one direction that while the indicators are all completely overbought or oversold, it continues to move in the same direction. If you come across this situation, don’t be afraid, bet on the continuity of the trend. After checking the Day (D) and the 4 hour charts, check the hourly chart. Ideally it is moving in the same direction, if it’s not, then the market is experiencing a retracement (temporary reversal in the trend). Wait until it runs its course and the market starts moving in the previous direction.
> Choose the length of time for the Binary Option – Once you have the 3 charts aligned choose if you want a 15 minute or 30 minute trade. I usually prefer the 15 minute trade. Use the chart with the M15 (you should always use the graph with the same time span as the trade). In this case whenever the Stochastic Oscilator indicator moves in the direction of the trend in the above point, you should open a 15 minute trade.
Trend Following – Precautions:
> Don’t use the Trend Following Strategy when important news has been announced. See more information in the topic related to trading during the news schedule.
> Don’t use the Trend Following Strategy during periods of low market volatility, especially when the European and American markets are closed, since trends are normally limited by supports and resistances.
> If you have losses on 3 consecutive orders, you should stop trading. Either because you’re doing something wrong, or because the market is changing or undergoing a retracement (temporary reversal in the trend). Return to trading the next day.
> I use the Stochastic indicator, because I am very familiar with it since I have been FOREX trading for several years, and yet, like all traders, I still lose money on trades. There are no foolproof strategies, systems, or indicators. There are other indicators that may be more to your liking, such as the RSI, and many others. My advice is that you should use whatever indicator you like best and learn as much as possible about how to use this indicator until you are an expert. Sometimes there are traders who are always in search of the miraculous indicator. They waste time searching and testing various indicators, without ever finding “the one” because they never explored each one enough to become expert users.
If you have any questions or suggestions about Trend Following Strategy do not hesitate to comment, whether on the article or by sending me a message through the contact page.