Trend Following Discussion

Ah yes but nothing feels better than opening a position and having it move immediately in your direction without ever looking back! Very hard to do and never expected but when it does, ...that is perfection. Then you wish you had opened with a larger position!!!

You are doing a fantastic job here Rico! Keep up the great work. I think this is a valuable and much needed forum. This is where anyone who buys or sells paper assets should start.

Congrats man!

Couldn't agree more.

Alexander Elder describes the longer term chart(weekly) as being like the tide in the ocean.  So you always want to trade with the tide, and never against it.  Then the intermediate term chart(daily) is like the waves within the the tide.  Obviously the waves ebb and flow within the tide, but the tide always sets the direction.  I think this is a pretty cool analogy being that I like to surf.

"Therefore daily rallies provide great shorting opportunities while the trend is down".   Obviously the opposite is true, and applies here as well.  

"Triple screen trading begins with the long term chart, one time-frame longer than the one you plan to trade.  Most traders pay attention only to the daily charts,  with everybody watching the same few months of data.  If you begin by analyzing the weekly charts, your perspective will be five times greater than that of your competitors."  

"The original system uses the slope of the MACD Histogram on the weekly chart to identify the market trend(or tide).   The slope is defined as the relationship between the two latest bars.  If the slope is up the bulls are in control, and it is time to trade from the long side.  If the slope is down, the opposite is true."  

A single uptick or downtick on the MACD histogram indicates a change of trend.  Up-ticks below the center-line, and down-ticks above the center-line give better buy and sell signals, than buying above and selling below.   The absolute best signal is when the trend changes from buy to sell at extremes above the centerline, and from sell to buy at extremes below the centerline.

So the idea of the first screen is to decide whether to go long, short, or stand aside.  The direction of the histogram eliminates either the long or short part of the equation.  "You have to swim with the tide or stay out of the water".  

The second screen is the "wave" direction within the tide.  The waves that go against the tide/trend represent your long/short opportunities.   These are found on your daily chart, and use an oscillator as the trigger for the trade.  Any oscillator should do, but I will use stochastics as an example.  When the trend is down, a stoch. reading of 70 or above indicates an overbought condition, and indicates a shorting opportunity, and vice versa.  

"The third screen identifies the ripples in the direction of the tide.  It uses intraday price action to pinpoint entry points.  The third screen does not require a chart or an indicator.  It is a technique for entering the market after the first, and second screen have given the signal to go long or short.  It is a trailing buy-stop in an up-trending market, or a trailing sell-stop in a down-trending market.  They catch the upside and downside breakouts."

I will use the trailing buy-stop as an example.  When your daily oscillator rises from its over-sold condition, you place a buy-stop one tick above the previous day's high.  If the prices rally, you will automatically be stopped in once the price rallies through the previous day's high.  If prices continue to decline, your buy-stop will not be touched.  Continue to lower your buy-stop entry each day until you are stopped in, or the weekly chart changes direction and your order is canceled.   

Active traders can use the daily oscillators as new entry points for pyramiding, or increasing original position size.  Stops should be fairly tight in case the trade doesn't work out, but according to each individual's risk/reward.  To exit, the trend may be followed until the weekly histogram changes direction to capture the whole trend, or you can use the daily oscillator to capture the large moves within the trend.

Hope you guys find this useful.  A video I watched recently from Alessio Rastani advises switching the MACD from a 12/26, to a 20/43.  Which uses the centerline more effectively, and captures more of the whole trend.  It smoothes out the histogram as well which would be good for this system.

Quotations above were direct quotes from Alex Elder, that I took directly out of the book "Trading for a living".  UNG looks like it has turned up on the weekly histogram, so I am waiting for a buy signal.  I will let you know how it plays out along with the details!

I still like my MA5/13 cross as an entry.  The MACD cross is also a good entry.

$95 is resistance - depending on what you have it would seem a good trade to take 1/2 profit there and the rest on a break down through to maybe $92-$93.  That is from what I saw of the latest Technical Traders video.

Markets are in transition now waiting for a break one way or another.  I am holding off new positions until some direction becomes clear.  Thoughts are we are close to a break down in the market, with the dollar up and PMs down some more.  When is the question.  Then likely a small bounce and a heavier drop after that.  Could get interesting soon.

Instead we got a reversal, so we have more upside before we get a correction.  The Euro broke out of its box, and I went long the Euro at $1.324 - I will look to ride it up maybe 100 points or so.  While I missed a lot of upside in Silver and Gold, I don't feel bad as it was not predictable.  I also still have profit because my option values have gone back up.

Not sure why but the EMA seems too jagged and for the way I am using them the normal works better.

I know this isn't a day trading thread, but I do think that this system works pretty well for that too.. on the shorter time frames of course.  Such as the 5 min, 15 min etc.

It's a lot more work and not really needed.  Best is to stick with the dailys. Get some really nice big moves.  

Interesting day for crude oil coming up tomorrow. Inventories usually have some nice moves. Big inside range 99.13 - 95.84.  Do we break out above 99.13 and have an outside range for the day?  We shall see.

Bonds and the dollar are on sell signals but that can all change really fast.  Super interesting market right now.  S & P near the highs of 2011.. Something tells me we might see a flash crash later this year :) 

Will the s & p make new highs? (above 1370) If not look out!!

UNG- New entry is a break above today's high of $5.33.

SOHU- Entry is a break below today's low of 51.70.  (unless it goes lower before EOD)