Simple Trading Strategy using Trend lines
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This is a very simple trading strategy that requires no technical indicators. And yet, this strategy proves very effective! This trading strategy is a mix between non-aggressive scalping and aggressive swing trading.
NB: simply reducing the time unit and validating the slants more quickly gives more aggression; but this gives a lot more false signals.
This trading strategy simply consists of tracing bullish and bearish short term slant lines, then trading the breakout of slant lines to enter or exit a position. The stops are usually placed above the last highest or lowest point. If the last highest or lowest points are too far away, the stop can be moved closer.
Slants can be drawn on only two points of contact (and not 3) as long as the highest / lowest are well marked.
Here is the strategy applied step by step:
Bearish downward slant; you enter long with a stop loss under the last lowest point.
The bullish movement stops around 0.9660. Exiting the long position would normally be at about 0.9645. Then enter short at the same price because the price breaks a bullish upward trend line (stop loss above the last highest).
The bearish rally got off to a good start and, in the middle of the movement, a bearish trend line is created which is immediately broken at the end of the movement. This break reverses our trade from short to long, with a stop loss below the last lowest (around 0.9540).
The bullish rally that follows is quite significant and leads to the creation of a new bullish trend line. This is broken around 0.9660 to turn our trade into a Short with a stop loss above 0.9690.
This bullish trend line break didn't work. We would normally be paused. We find ourselves flat and we wait.
A little later there are two trend lines; one bullish, one bearish. We wait for the break. In the end this happens close to the bottom; we enter short at the break in the bullish trend line with a stop loss above the last highest (still around 0.9690).
Unless we made a profit at the bottom of the bearish rally, we're still short. But a bullish trend line appears and the price rebounds towards the previous bearish downward trend line. We finally get a buy signal that returns our trade to a long.
NB: the stop is not closed by the stop loss but by the loss of some pips; this would happen even if we moved our stop to the top of the last highest before the break of this bearish downward trend line.
NB 2: on this long, opened in reversal of trade, you will notice that we don’t place the stop loss under the "real" last lowest which would be around 0.96. Towards 0.9640 does very well because it would also let us return to a short if the new bullish trend line, already built, were broken.
Unless I closed, once the old bullish trend line (around 0.9720) was touched, I would return the trade to 0.7675 (at the break of the bullish trend line we are currently working on. And we return to a short (with a stop loss above 0.9720).
A great bearish rally. We exit the shorts at around 0.9555 (at the break of the bearish downwards trend line which was created in the bearish rally).
We would normally enter long at the same price with a stop loss under 0.9520.
Problem, we currently note that there are two inverted trend lines; either the exit will be bullish, and the last long, opened during the break of the last bearish downward trend line (created by the big rally), will return to positive; or the exit will be bearish and the long turned back into short (stop loss of the long executed, but a short entry at the same price because we have a break in the bullish trend line).
If you have any questions about this strategy, please feel free to ask.
Similarly, if this presentation leaves you a little doubtful, do not hesitate to give me a time unit and a pair so that I can rework the example, and I’ll show you the actual result.
Example on EUR/USD; a real situation on the 1 hour time unit: we are currently short; if the price breaks the last bearish downward trend line we will return the trade to a long with a stop loss under the last lowest point.
NB: simply reducing the time unit and validating the slants more quickly gives more aggression; but this gives a lot more false signals.
The principle of this trading strategy
This trading strategy simply consists of tracing bullish and bearish short term slant lines, then trading the breakout of slant lines to enter or exit a position. The stops are usually placed above the last highest or lowest point. If the last highest or lowest points are too far away, the stop can be moved closer.
Slants can be drawn on only two points of contact (and not 3) as long as the highest / lowest are well marked.
Here is the strategy applied step by step:
Bearish downward slant; you enter long with a stop loss under the last lowest point.
The bullish movement stops around 0.9660. Exiting the long position would normally be at about 0.9645. Then enter short at the same price because the price breaks a bullish upward trend line (stop loss above the last highest).
The bearish rally got off to a good start and, in the middle of the movement, a bearish trend line is created which is immediately broken at the end of the movement. This break reverses our trade from short to long, with a stop loss below the last lowest (around 0.9540).
The bullish rally that follows is quite significant and leads to the creation of a new bullish trend line. This is broken around 0.9660 to turn our trade into a Short with a stop loss above 0.9690.
This bullish trend line break didn't work. We would normally be paused. We find ourselves flat and we wait.
A little later there are two trend lines; one bullish, one bearish. We wait for the break. In the end this happens close to the bottom; we enter short at the break in the bullish trend line with a stop loss above the last highest (still around 0.9690).
Unless we made a profit at the bottom of the bearish rally, we're still short. But a bullish trend line appears and the price rebounds towards the previous bearish downward trend line. We finally get a buy signal that returns our trade to a long.
NB: the stop is not closed by the stop loss but by the loss of some pips; this would happen even if we moved our stop to the top of the last highest before the break of this bearish downward trend line.
NB 2: on this long, opened in reversal of trade, you will notice that we don’t place the stop loss under the "real" last lowest which would be around 0.96. Towards 0.9640 does very well because it would also let us return to a short if the new bullish trend line, already built, were broken.
Unless I closed, once the old bullish trend line (around 0.9720) was touched, I would return the trade to 0.7675 (at the break of the bullish trend line we are currently working on. And we return to a short (with a stop loss above 0.9720).
A great bearish rally. We exit the shorts at around 0.9555 (at the break of the bearish downwards trend line which was created in the bearish rally).
We would normally enter long at the same price with a stop loss under 0.9520.
Problem, we currently note that there are two inverted trend lines; either the exit will be bullish, and the last long, opened during the break of the last bearish downward trend line (created by the big rally), will return to positive; or the exit will be bearish and the long turned back into short (stop loss of the long executed, but a short entry at the same price because we have a break in the bullish trend line).
If you have any questions about this strategy, please feel free to ask.
Similarly, if this presentation leaves you a little doubtful, do not hesitate to give me a time unit and a pair so that I can rework the example, and I’ll show you the actual result.
Example on EUR/USD; a real situation on the 1 hour time unit: we are currently short; if the price breaks the last bearish downward trend line we will return the trade to a long with a stop loss under the last lowest point.
