Forex Trend Following Systems in NFP Week

This week sees a fairly common scenario played out when there’s a Non-Farm Payroll (NFP) announcement at the end of the week. There was some price action on Monday (Sunday night for US) but price has been tightly range-bound for the remainder of the week.  Forex strategies designed to follow trends obviously do not work in this climate – in fact, they often lose money badly!  Have a look at an hourly chart of the EUR/USD for this week below:

EUR/USD during NFP Week

EUR/USD during NFP Week

Trend-following systems often work on the crossover of moving averages.  Good systems look at the higher time frame as well as the current time frame.  If the higher time frame trend is moving up, then we’d look for opportunities in the current time frame to get on an upward trend too.  For instance, as the price moves in peaks and valleys on the current time frame, we’d try to enter just after we’ve seen a valley (trough).

This week, the higher time frame trend would have been seen as upward because it would have taken into account the big move up last week.  If we’d tried to catch minor breaks on our current time frame in an upward direction, then we’d probably lose that trade because price didn’t really go anywhere!

There are several possible solutions to this problem:

  • A good money management strategy would STOP us from trading if we’ve had a string of losses.  For instance, if we’ve taken trades on Monday and Tuesday using our trend-following system and we’ve been stopped out for a loss each time – then our money management strategy should stop us from trading until price starts trending again.  My personal strategy is to stop trading for the day if I’ve lost a specific percentage of my trading account in that day. This is a good time to sit back, evaluate what’s going on and get back into the market when ready.
  • Price will normally consolidate after a big move, up or down.  We saw a good move up in the EUR/USD of nearly 500 pips last week, so it’s not surprising to see some tight consolidation going on this week. If this becomes obvious in price action, then abandon your trend-following system until price breaks the range and begins trending again or starts a new trend.  The end of this week sees the NFP announcement too, so price generally settles down considerably in the lead up to this.
  • Beware of trend following systems that only give an ‘up trend’ or ‘down trend’ signal.   A good trend following system will also have a ‘flat’ signal.  In this case, it’s best to abandon your trend following system until a more appropriate time.
  • If your trend following system is not working for any of the above reasons, then move to another more appropriate system – something that works in range-bound / consolidating / correction markets.  I like to use a bollinger band system and enter off the bounces of the outer bands and take profits around the middle of the bands.  I’ve had some decent success on the 15minute charts using this method this week.

In summary, don’t believe that a good forex trend following system is the answer to all your dreams.  It’s a good tool to have in your trading toolkit but you need to be on the lookout for range-bound markets (such as consolidating after a big move or in the lead-up to a big news announcement like NFP).  In range-bound markets, either DON’T trade, or use a more appropriate system, designed for those types of markets.

Remember, always Trade Seriously!

Mark Thomas

www.tradeontrack.com

Free Forex Trade Management Software

ToT-Lite is now available, which gives you absolutely free forex trade management software,  built especially for forex traders who are serious about improving their skills and profitability.

What is ToT-Lite?  It’s the free version of Trade on Track which has all the great features of trade logging, trade tracking, trade management, risk management and performance analysis built in.  These are indispensable tools for the serious forex trader.

So what is Trade Management Software?

Trade management is all about managing your open trades. It’s about knowing why you’re in a trade, and managing that trade through to completion, based on your trading plan.

Traders often have more than one trade open at the same time. They may be trading multiple timeframes, multiple systems and multiple currencies at once. When a trade is initially opened, it is usually very clear in the trader’s mind why they opened that trade and how they intend to manage it through to the close of the trade.

However, a trade may be open for hours, days or even weeks at a time and it’s easy to lose track of why the trade was opened in the first place. That’s where effective trade management becomes an essential skill to master. An experienced and successful trader will be able to manage a trade through to completion, based on his original plan and current market conditions.

Managing a trade may involve adjusting the stop loss or target as the trade progresses. It may also involve closing out part of the position during the trade, or adding to the position if appropriate. Experienced traders will have these adjustments in mind at the start of the trade, as part of their trade plan, and they will stick to the plan so as to have the greatest chance of success.

Trade on Track facilitates effective trade management in a number of ways, by allowing the trader to:

  1. view and check off a list of “rules” at the start of the trade, to ensure he’s taking the trade according to his plan.
  2. record the reason he took the trade. The reason may include details such as the Trade Type, the chart time frame that was used and special comments.
  3. review and edit the reason and associated details throughout the course of the trade.
  4. adjust stops and targets within the tracking program.
  5. split a trade and take partial profits (or losses).

Beware of so-called “trade management software” which is really just a spreadsheet with some fancy formulas built in.  Trade on Track offers much more than a spreadsheet ever can.  Features such as price feeds, screenshot uploads, news announcement warnings, trading platform integration and other critical tools for the forex trader cannot be implemented in a spreadsheet.

Try ToT-Lite today, for forex trade management software which is totally free.  If you love it and find it indispensable, you’ll probably want to upgrade to ToT-Pro which is built for longer term trade analysis and has even more great features.

Trade on Track and Trade Seriously!

Mark Thomas

www.tradeontrack.com

ToT-Lite is here! Free forex trade logging software

Due to popular demand and what we feel is the right thing to do, we’ve finally released ToT-Lite which is a totally free version of Trade on Track!

If you’re into forex trading and you’re serious about winning this game, then you need to use this product.  We’ve realised that this is such a valuable piece of software, that it should be accessible to every forex trader who wants to succeed and become consistently profitable.

Let’s be clear: ToT-Lite is a restricted version of Trade on Track.  It doesn’t have all the features of ToT-Pro, but it definitely will allow you to:

  • Easily keep a secure, online trading log of your forex trades – accessible from any computer that has internet access.
  • Skyrocket your trading performance using the dashboard and reports to easily spot problem areas & successful areas of your trading.
  • Master your trading discipline by creating and maintaining personal trading systems and checklists.  ALL highly successful traders that I know or have read about, talk about the importance of discipline – it’s the most important factor you must have to become consistently profitable.
  • Improve your trading mindset using Start of Day and End of Day checklists & notes.
  • Refine your money management skills through automatic lot size calculation and risk tracking with every trade.
  • See at a glance your trading profitability today, weekly, monthly, yearly.
  • Take control of news announcements by entering additional news types and news event calendars.

Really, if you’re absolutely serious about making a living from forex trading or even if you just want to make a decent side income or build your cash investments, you MUST take the steps to:

  • Track and analyse all your trades properly so that you know exactly where you’re winning and where you’re losing.
  • Put in place and refine your money management skills.  Position sizing is an extremely important and often missing piece of a proper trading plan.
  • Find and refine trading strategies that fit your trading personality.  There are probably an infinite number of trading strategies that can be profitable in the long run, but you absolutely need to find one or more strategies that fit your style of trading.
  • Peak your trading discipline.  Without discipline, all of the above is useless.  You must stick to your trading plan, including entry rules, trade management, exit rules, and overall money management strategy to succeed.

With ToT-Lite, we’ve made this process as risk-free as possible for you.  You can use ToT-Lite for as long as you like, without any fees at all!  Be warned though, for it to work for you, you’re going to have to actually use it … to record every trade you take.

Don’t delay, register right now for free and start getting in the habit of tracking and analysing your trades properly.  This could be the end of the forex roundabout for you – start getting ahead and on the right track now!

To your trading success,

Mark Thomas

PS. Again, the link to register for ToT-Lite is: https://www.tradeontrack.com/startnow/ There’s no catch, but if you have any questions at all, please email me: markt at tradeontrack dot com.

Trade Management Software / Superior Trading Log – Free Access NOW

Just a quick note:  The new-look Trade on Track website is now up and running live, and you can get started with a free trial right now.

If you’re looking for a superior trading log for your forex trades (real software, not just a fancy spreadsheet) that can help you manage your trades, manage risk, increase trading discipline and basically help you improve your trading performance and profitability, then click the following link to register for a free trial now.  www.TradeOnTrack.com/startnow – you have absolutely nothing to lose!