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 successfully. When looking for trend-trading opportunities, many questions arise such as:
What is the direction of the trend?
Should I get in now or wait for a retracement?
When does the trend end?
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.
We have developed a strategy that answers all of the questions above while at the same time giving us clear entry and exit levels. This strategy is called the moving average MACD combo. We use two sets of moving averages for the setup: the 50 simple moving average (SMA) and the 100 SMA. The actual time period of the SMA depends upon the chart that you use. This strategy works best on hourly and daily charts. The 50 SMA is the signal line that triggers our trades, while the 100 SMA ensures that we are working in a clear trend environment. The main premise of the strategy is that we buy or sell only when the price crosses the moving averages in the direction of the trend. Although this strategy may seem similar in logic to the "momo" strategy, it is far more patient and uses longer-term moving averages on hourly and daily charts to capture larger profits.
Was this article helpful?