Daryl Guppy, famous Australian author of the stock trading book Trend Trading developed this method. You will have to read his book to understand his trading rules, but I will attempt to summarise them below.
Although the strategy is intended for the stock market, many traders have successfully applied it to the forex market as well.
- Short Term:
- EMA – 3 , 5 , 8 , 10 , 12 , 15 – yellow
- Long Term
- EMA – 30, 35, 40, 45, 50, 60 – light blue
The yellow lines represent the market sentiment of short term traders.
The blue lines represent the market sentiment of long term traders.
Short term traders always initiate the trend, but they need the support of the long term traders in order to keep it going.
A trend is identified when
- the lines of the long term traders are spread out
- the lines of the short term traders are spread out
- there is a growing gap between the short and long term traders
This signifies an agreement between short and long term traders.
Jump into the trade when the trend has been going for a while. What ‘a while’ means is dependent on your personal tastes. It could be days, weeks, or months.
Exit using the step stop loss.
This trading style helps traders stay out of choppy markets, and save their trades for another day.