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In today’s episode, you’ll discover how you can ride massive trends like a pro (that nobody tells you).
So listen to it right now…
Forex Risk Management and Position Sizing (The Complete Guide)
How to ride massive trends in the market
How to Improve Your Risk to Reward on Every Trade and Increase Your Winning Rate
Download The Ultimate Guide to Trend Following
How to Set Stop Loss to Protect Your Profits and Ride Big Trends
How to Use Trailing Stop Loss (5 Powerful Techniques That Work
Stock Risk Management: How To Calculate Your Position Size
Hey, hey, what’s up my friend?
In today’s episode, you’ll learn all about riding massive trends that others can only dream of.
Back in my prop days, I was buying USD/JPY and there was this particular trading setup I call the false break. I believe it was on either the 1 or 2-hour timeframe and there was a false break setup at support. I bought it just part of my trading setup.
I went long, and I went home. The next day, I remembered USD/JPY and it just exploded up higher and I was wondering what’s going on. Usually, when you’re trading, one of the first few things that you log on to see is your P&L. My P&L shot up in the green massively.
And I was wondering what happened, then I realized BOJ intervened the market which led the USD/JPY to explode up higher and I happened to be there then to catch the huge wave.
If you asked me, in a way, I was lucky because I had no idea that BOJ was going to intervene then. I had no idea that the trading setup I took which look just like any other trading setup, will be the one to let me ride a massive trend in the market.
I believe for that particular trade, I achieved about a 1:45 or a 1:50 risk to reward. Meaning if you risk $1, you can make $50 in return. That was a very big winner for me.
And today, I want to share with you a few lessons about trend following and if you want to adopt trend following then these few things that I’m about to share with you are important.
1. Have no target profit
This sounds logical but some traders just don’t get it. For example, if I bought USD/JPY and if I’m happy with let’s say a 50 pip target, then there’s no way I could ride the trend.
Because when you have a target profit, in essence, what you’re doing is saying to the market, “Okay, this is enough man, don’t give me any more profits, let me just book my profits and get off the trade.”
Now that’s not wrong If you’re coming from a swing trading perspective, that’s fine. But if you are trying to ride a trend in the market, you cannot have a target profit because you are limiting your profits.
2. Have a trailing stop loss
As a trend follower, if you want to ride massive trends in the market, the only way to do so is to have a trailing stop loss. What I mean by a trailing stop loss is, as the market moves progressively in your favour, you’ll trail your stop loss to lock in profits along the way.
Let’s say the market goes from $100 to $120, your trailing stop loss could be let’s say $110. You’re giving it a $10 buffer to move. If it hits $110, then you exit the trade.
3. Expose yourself to many different markets
Here’s the thing:
You just have no idea at which point in time which markets are going to trend. So if you want to increase your odds of capturing a trend and riding a trend, you want to expose yourself to different markets.
Trade forex, bonds, agriculture, commodities, equities, all these different markets from these different sectors to increase the odds of you capturing a trend. If you only trade EUR/USD or GBP/USD and a few other currency pairs compared to a trader who trades 50 different markets. Let me ask you, who has a better chance of riding the trend?
Clearly, it’s the one who trades more markets. You have to trade a variety of markets. Don’t limit yourself to just a handful of markets because that is not putting the odds in your favour.
4. Risk a small fraction of your trading capital on each trade
Since you have to trade a lot of markets then this is where your risk management comes into play. Because you have no idea which market is going to trend. Often the market breaks out and it’s a false breakout and it goes back into the range.
That’s why you must risk a small fraction of your trading capital on each trade. If you ask me, anything more than 1% is too much. 1% and below is a good benchmark to consider.
Take for example, Richard Dennis, he’s one of the head for turtle traders. And if I’m not wrong, he went into a serious drawdown with a trend following methodology. If you asked me, it’s because he was risking about 2% risk on each trade. I find that’s way too aggressive.
So if you want to ride trends in the market, then you got to bring down your risk per trade level because you just have no idea when you’ll capture a trend, even if you might be trading 40 or 50 markets.
5. Trade markets which tend to exhibit trending behaviour
This is something I’ve discovered recently based on Andrea Unger’s sharing. He says different markets have different behaviour and he shared a very simple backtest to figure that out.
Whenever the price breaks above the previous day high, he goes long, and he holds that long position until the price breaks below the previous low, and then he goes short. And he keeps doing this backtest over and over again with the data he had.
And what he realized is that if a market has a trending behaviour, the equity curve will slope up over time. But if a market has a mean-reverting behaviour, meaning whenever it breaks out of the previous day high and then goes back into the range, you’ll have a negative equity curve.
So I ran it across different markets, forex, and futures and I realized that yes, different markets have different trending behaviour based on the timeframe that you’re trading as well.
What I realized was markets like GBP/USD, GBP/USD are trending markets, meaning they tend to trend better than markets like AUD/CAD or the bond markets.
That’s another thing to consider if you want to ride trends in the market. You can also consider focusing on markets that tend to exhibit trending behaviour.
So that’s pretty much it for today’s episode. I hope you got some value out of it. With that said, I’ll talk to you soon.
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