Hey hey: what's up my friends so in today's episode right i want to talk about. When should you not write a trend? So let me put a little bit of context here right so so, as you know, right uh. One of my trading strategies is the trend. Following uh approach, right where i write massive trends across different markets, so when i talk about when not to write a trend right, this is mainly for discretionary price action.

Traders right when you want to wonder to yourself right, should i be riding this move, or should i just capture one swing in the market? So that's the perspective. That is the context that i'm coming from. If you're a trader, a systematic trend, follower, then by all means, go and write your trend right - and you know forget about this video, so a little bit of context over here. This is mainly for discretionary price action trader.

So a few things, a few tips to share with you on when not to write a trend number one when the higher time frame is overextended. So let's say you enter a trade on the daily time frame and you happen to realize that on the weekly time frame right, the market is overextended. So what do i mean by this is let's say the market on the weekly time frame? It's uh in an uptrend as well, it goes up pulls back, goes up, pulls back and goes up. So when he's at this high point when it goes up right at this high point, you don't want to be looking to write a trend right, because chances are the market will make a pullback all right.

So this is uh the first thing to pay attention to right to whether the higher time frame is it overextended. Is it far away from an area of value? Because if it is right, then you don't want to ride the trend, but instead just capture a swing and get out right before the market makes a pullback. Because if you think about this right, when the higher time frame makes a pullback right on the lower timeframe, let's say a weekly timeframe makes a pullback the daily timeframe. Right, it's going to be more than just a pullback.

The pullback is going to be much more deeper because of the way the uh, the charts are being uh built right. So this is just something to be aware of right. A pullback on a weekly timeframe will be a much deeper move on the daily timeframe, and if you go down even to the time frame, it could be even a downtrend altogether. Okay, so first thing right is that uh don't look to write a trend when the higher time frame is overextended.

Number two uh don't look to write a trend right when you know this is for forex right. When you know certain currency pairs have a mean, reversing characteristics. So what do i mean by this? So so uh i've done uh back testing and research on this and, for example, a currency pair like aussie, canadian. It has a mean, reverting behavior.

So what this means right is that uh, i ran a back test right. This is this idea is actually uh taken from andrea, unger, so credits to him right. So what i did is that uh, i run a back test on aussie, canadian right whenever the price breaks above the previous day high. I go long.

Whenever the price breaks below the previous day low on aussie canadian, i would exit the long trade and go shop. So i keep doing this right whenever it breaks out higher previous day high go long hold on until the price breaks below the previous day low. Then you exit the long trade and you go short, so i keep doing this and what happens is that for the aussie canadian currency pair, the equity curve is downward sloping over time. So when you do this so-called breakout strategy, it loses money on aussie, canadian and the reason for it is quite simple - is because aussie canadian is not a trending market.

In other words, it's not a market that has momentum followed through on the daily timeframe. Whenever it breaks above the previous day, high chances are, it will reverse down lower okay, at the same time, right for paris like pound dollar poundian. These are momentum, currency pairs. These are trending currency pairs whenever it breaks above the previous day high.

It tends to have some follow-through so when i applied this same so-called uh strategy, this pairs right here for upward sloping equity curve. So what has this got to do with writing trends? Simple right. If you trade mean reverting currency pairs like pound, canada, sorry aussie, canadian, right or pound canadian right these are mean reverting pairs. They tend to reverse right at the previous day, high or low.

So bear this in mind and i would say it's much more uh advisable to just capture. One swings in this type of mean reverting characteristics of this fx pairs right. So that's just a a little bit of an additional tip for you uh. The third thing right, you shouldn't, be writing trends right when you're not willing to to give back profits, so so here's the thing right here is a fact right.

If you want the right trends at the market, there is absolutely no way ahead of time right to know when the trend will end exactly at which level you might get it once or twice you know getting lucky, but the rest of the 80 of the time You will get it wrong, so let me ask you how many times have you you know take profit at the highs, thinking that the market can't go up any higher and next week, when you look at the chart, the market broke out even higher, and you know When even much more in your favor, so you get my point right so so you have to be willing to give back open profits to ride the trend and the way we do it is that we use a trailing stop-loss. For example, if you are buying in an uptrend we're gon na do right the uptrend, you can use the trailing stop-loss like the 100-day moving average, and if the price closes below 100 day moving average, then you exit the trade, but if it doesn't right, if it Pulls back but hasn't break below the 100-day moving average. You continue to hold the trade and that's how we use a trailing stop-loss moving average is one way to do so and, and the nature of trailing stop-loss is that you have to be willing to give back open profits to write a trend if you're not willing, Then you know it's pretty much impossible to ride the trend. Okay, so that's the third thing and finally, finally right number: four: you have to be willing right to stomach the volatility so trend following it's a it's a robust, it's a profitable, proven trading strategy.

That has you know, worked over the last few decades, but the reason why not many traders are able to trade, it is because they can't stomach the volatility. So you can imagine this right. Let's say market breaks up higher, you catch the trend. Your account is up.

Maybe 20 but because remember, i said right that to write a trend you have to be willing to give back open profits. You're going to use uh trailing stop loss, so the market could be. You know up 20, your account up 20, but as you, trade, a stop loss right. You know that is not the time to exit your trade, yet you have to exit only when it hits your trailing stop loss.

And what could happen is that the market could reverse down lower all the way down and hit your trailing, stop loss and instead of you know, making a 20 profit at one point in time. You might only get up with a two percent profit, so you've technically lost 18. So this is the type of volatility right that you have to expect as a trend follower, your open pnl is going to swing up and down, but in the grand scheme of things right, you will make money, but at the uh certain point in time right at Each and every day, when you look at your pnl, you can just swing up and down like this and that's the nature of this trading methodology. So you have to be honest with yourself: can you handle that volatility and from what i've seen right? Most traders cannot handle it; they want something consistent, something fixed right and that's.

Why trend following it's a simple trading strategy, but not easy to execute consistently all right. So with that said, right uh. Let's do a quick recap number one: when should you not write a trend when number one when the higher timeframe is overextended number two, when the certain markets or certain currency pairs have a mean, reverting characteristic like aussie canadian number, three you're not willing to give back Open profits and number four: you can't stomach the volatility okay. So with that said, i have come to the end of today's episode and i will talk to you soon.

You.