Trading strategy: TrendPlus

Description

The TrendPlus strategy tries to detect a reverse movement in a market with a clear trend i.e. a market going up which has temporarily reversed or a down market which suddenly moves up. "The trend is your friend" is a classic saying in trading. The TrendPlus strategy respects this important saying. It takes positions in the direction of the trend but only when the trend is temporarily interrupted.

The TrendPlus strategy does not trade often but it shows a high hit ratio. One to two trades per week seems to be the average. Positions are held over several days. This strategy is based on the basic principle of trend continuation and should work in any market.

 

  
Suitable for : Market indices (CAC, DAX, AEX ...)
: Forex (EUR/USD, GBP/USD …)
: Commodities (oil, gold …)
Instruments : Futures, Forex and CFDs
Trading type : Swing trading
Trading tempo : 1-2 Trades per week
The strategy : Video
Using NanoTrader Full : Manual or fully automated

 

The strategy in detail

The components of the TrendPlus strategy look deceptively simple, Bollinger bands and a trend filter based on a MACD (moving average convergence and divergence) concept. Do not be fooled by this. Both components have been fine-tuned and perfected in a particularly intelligent way.

In this description of the TradePlus strategy we will develop the strategy for the EuroStoxx50 market index on a 15-minute chart. This index trades 14 hours per day (56 x 15 minutes). The Bollinger bands are calculated on one week. We therefore take 280 x 15 minutes (= 5 days) as the value for the period span parameter.

Market prices move in and out classic Bollinger bands fairly frequently. The TradePlus strategy is only interested in detecting really extraordinary price movements out of these bands. To define the width of the bands TradePlus chooses a triple standard deviation. You could work with more narrow bands. More narrow bands, however, will have more undesirable signals and higher drawdowns.

The signals in the strategy are set up has "rebound" signals. A rebound signal is a signal not when the market price moves out of a band but when it moves back into the band after having previously moved out of it.

In addition, all signals based on the special large Bollinger bands are subjected to a trend filter. This filter is built around an MACD concept consisting of two exponential moving averages of 11 and 66 periods respectively and calculated on a 1-day timeframe.

The trend filter has an additional interesting feature. an area around the zero line that indicates "no trend". This variable zone is calculated on the basis of the ATR (Average True Range).

In this screenshot the impact of the trend filter (bottom half of the chart) is clearly visible. The filter divides the chart background in three colored areas: green (positive market trend), red (negative market trend), and white (no market trend).

When to open a position?

A long position is opened when the market price moves out of the bottom band and rebounds back into the band - but only if the market is in a strong positive trend as indicated by the trend filter.

A short position is opened when the market price moves out of the top band and crosses back into the band - but only if the market is in a strong negative trend as indicated by the trend filter.

When to close a position?

A long position is closed when the market price moves above the top band and crosses back into the band.

A short position is closed when the market price goes below the bottom band and rebounds back into the band.

 

This screenshot shows the open and subsequent close of a long position.


 

This screenshot shows the open and subsequent close of a short position.

It would be useful to experiment with some profit targets and stops. This can easily be done in NanoTrader Full. The impact when you insert different stops and targets is immediately visible on the equity curve.

 

Conclusion

The TradePlus strategy uses classic technical analysis components but they have been fine-tuned and perfected for a particular purpose: to detect retracements (market is in a strong trend, but temporarily moves in the opposite direction) and trade when the market moves back in the direction of the trend. This strategy can be used on a great variety of instruments such as market indices, gold, oil, forex…. The number of signals is limited to 1-2 per week. The hit ratio, however, is above average.

Practical implementation

In NanoTrader Full follow these steps:
  • Choose the instrument you wish to trade.

  • Open a chart with the template study "WHS TrendPlus".

  • Semi-automated trading? Simply activate the TradeGuard+AutoOrder or the AutoOrder function.