Trading do not need to be complicated. Traders do not really need to overcomplicate things in order to profit from the market. Sometimes it even causes problems. New traders could sometimes get confused with too much information and too much decision making that needs to be done per trade.
Imagine having to decide about 10 different filters and conditions. You see an entry setup about to take shape, so you start looking at each condition. Then, price suddenly makes a strong move. Out of panic and the “fear of missing out”, you mess up and make the trade even without complying with all the rules. Then, as you enter the market, price starts to reverse. You realize that many of your rules and filters are not met. Then you see price starting to reverse on your trade and hit your stop loss. You have waited for so long for all the conditions to be met only to realize that you messed up because of too much information that needs to be processed. That is such a devastating blow on a trader’s psychological capital.
Now, take the opposite approach. A simple strategy with a few rules. This allows you to get in and out of the market and pic trade setups that looks suitable for you. It would not have as high a probability as a well filtered out strategy, but it allows you take many trades and let the law of large numbers work in your favor. Sure, you get some small wins and losses here and there, but you also get highly profitable trades every now and then. In the end, traders with simple strategies could still profit in the long run with less mental capital invested in each trade.
Simple Super Trend Forex Trading Strategy is a strategy with simple rules, yet it allows traders to capture huge trending market moves. This allows traders to take trades that have the potential to produce high yields.
Supertrend Indicator
As the name suggests, the Supertrend indicator is a trend following indicator.
The Supertrend indicator is mainly based on the Average True Range (ATR). It basically measures the degree of volatility within the market and if price moves in strongly in one direction compared to the ATR, then the indicator would indicate a trend reversal.
It helps traders identify trend direction by plotting a line overlaid on the price chart. The line shifts up and down together with price action. If the Supertrend line is plotted below price, the market is considered to be in a bullish momentum or trend. On the other hand, if the Supertrend line is plotted above price, the market is considered to have a bearish momentum or trend.
The Supertrend line also changes color depending on the direction of the trend. In this setup, a deep sky-blue line indicates a bullish trend while a yellow line indicates a bearish trend.
The Supertrend indicator could work as a trend filter or as a trend reversal signal. As a trend filter, traders could use the indicator to identify the direction of the trend and trade only in that direction. This works best for momentum trading strategies that are aimed towards making profits within a few candles. On the other hand, it could also be used as a trend reversal entry signal. Traders could use the shifting of the line above or below price and the changing of the color as an indication of a possible trend reversal and trade accordingly.
Trading Strategy
This trading strategy produces trade signals based on the Supertrend indicator. However, instead of taking every trend reversal signal that takes place, trades are filtered based on trend direction.
To identify the trend direction, we will be using the 100-bar Exponential Moving Average (EMA). The trend will be based on the direction of the slope of the 100 EMA line as well as the location of price in relation to the 100 EMA line. Traders should also visually identify if the market is trending based on the movement of price action. This will be based on whether price is making higher or lower swing highs and swing lows.
If the market is identified to be trending, traders should be on the lookout for a shorter-term trend reversal based on the signals provided by the Supertrend indicator.
Indicators:
- 100 EMA (green line)
- Super Trend (default setting)
Preferred Time Frames: 1-hour and 4-hour charts
Currency Pairs: major and minor pairs
Trading Sessions: Tokyo, London and New York sessions
Buy Trade Setup
Entry
- Price should be above the 100 EMA line.
- The 100 EMA line should be sloping up.
- Price should be constantly making higher swing highs and swing lows.
- Enter a buy order as soon as the Supertrend line shifts below price and changes to sky-blue.
Stop Loss
- Set the stop loss on the fractal below the entry candle.
Exit
- Close the trade as soon as the Supertrend line shifts above price and changes to yellow.
Sell Trade Setup
Entry
- Price should be below the 100 EMA line.
- The 100 EMA line should be sloping down.
- Price should be constantly making lower swing highs and swing lows.
- Enter a sell order as soon as the Supertrend line shifts above price and changes to yellow.
Stop Loss
- Set the stop loss on the fractal above the entry candle.
Exit
- Close the trade as soon as the Supertrend line shifts below price and changes to sky-blue.
Conclusion
The key to trading this strategy successfully is by waiting for the market to trend strongly and having the discipline to trade only in such conditions.
If the market is not trending, there is a high tendency that price would chop around and hit wide stop losses often. However, if the market is trending, the win rate would significantly improve and stop losses become tighter allowing for higher yields.
This type of strategy is a high yield trading strategy. This means traders profit from the high yielding trades that occur every now and then. In a trending market condition, there will be several trading opportunities. There will be some minor wins and losses. However, there will be one or two high yield trades. These trades are the ones that you should not miss as this will bring in the profits.
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