*Lower timeframe trend trading with some basic rules to help your success rate!*
If you have been following my blog from the beginning you should now be well aware of my opinions on trading with the trend. It is easier, safer and provides the best reward vs risk over a longer period of time. Spotting trends and trading them is a topic I have covered many times in both educational and trade breakdown blog posts and I would recommend you go back and read through my old posts if you are still struggling to do so.
My inspiration for this blog post is a very simple trend continuation trade I entered on Sunday evening. I never normally enter new positions at this time of the week because spreads and short term volatility are often high and this can result in inaccurate entries and poor success. However, I saw the spreads reduce at around 11pm and I was happy with where price was so I decided to enter a long position on the gold spot price.
The basis behind this trade was a very simple 1 hour trend continuation with the fibonacci retracement tool and trendline tool to assist with my entry accuracy. As always, you can track the progress of this trade live on the TradingView platform by clicking on the link below.
Let’s look at the daily timeframe chart for Gold Spot vs USD and I will talk you through my thought process as to why a late night, lower timeframe trend trade was perfectly acceptable.
Essentially, the higher timeframes were all bullish and showing no signs of slowing down. The last 2 daily candlestick closures were a huge bullish engulfing candle and a nice bullish wick. Last weeks candle also closed as a nice big bullish engulfing candle showing the momentum is still present. The price of gold was (and still is) also residing way above the daily and weekly 50 ema.
On the 4hr timeframe chart shown above, I could see that the bearish trendline was now broken and retested along with the $1432.00 resistance zone. This resistance zone then became a support zone and was retested on Friday where price rejected it.
The last few hours of Fridays trading was a little sell off but in my opinion, this was simply caused by profit taking from those market traders that don’t like to hold positions or all of their positions over the weekend.
As always, making sure the higher timeframe momentum is in your favour makes it much easier to look for lower timeframe charts and enter more aggressive positions with higher reward:risk ratios. Before I even looked at the 1hr timeframe chart I had made sure that the weekly, daily and even 4hr charts were all in alignment and all showing bullish momentum. This is rule number 1 and probably the most important rule.
Let’s look at the 1hr timeframe chart so I can show you my entry for the short position and why it ended up being extremely accurate with minimal drawdown.
Looking at the 1hr timeframe chart I could see price had rejected and bounce off the intraday support zone at $1432. More importantly, it made a higher low on the second test of the zone and therefore I was able to confirm the 1hr chart was now in a bullish trend.
I then drew a simple trendline across the two higher lows and applied the fibonacci retracement tool to the last swing high and swing low points on the chart. This gave me my target area for long positions entries where the trendline interacts with the 0.618 fibonacci retracement level. This is marked on the chart with the 2 arrows indicating the pullback and trendline bounce. I like to round up/down my position entry prices to the nearest whole numbers so I was looking at $1437.50.
Rule number 2 is to build up the layers of confluences that show your trade is gong to be a success. The more confluences = high probability of success.
In this instance I had the following confluences for this long position on Gold Spot:
- Higher timeframe bullish momentum.
- $1432 resistance broken and now acting as support
- $1432 support holding strong
- 1hr high high and higher lows (bullish trend)
- Trendline and 0.618 fib retracement level at $1437.50
My profit target was set at $1458 which is just below the -0.618 fib extension level. This would mean price is to make a new higher high which is highly likely thanks to the current 1hr timeframe chart being in a bullish trend.
I placed my stop loss comfortably below the fib 0.786 retracement level. This mean that I had an extra layer of security incase price pushed lower when retesting the bullish trendline.
Let’s look at how this Gold long trade played out. As I said previously, you can track the complete trade LIVE on the TradingView platform.
Price immediately bounced from the $1437.50 long position entry with almost zero drawdown. This is purely thanks to the 2 rules I have listed in this blog post.
By being on the side of the higher timeframe momentum and layering up multiple analysis, it is 100% possible to achieve super accurate entries like this.
As you can see, in the chart above, Gold price began to climb throughout the asian trading session to reach the target profit at $1458 within 8 hours of entering the position.
I am actually still holding this long position after seeing the strong bullish momentum come in to the market on Monday. Price is now residing at around $1464.00 at the time of writing which means the return of this trade is now at over 5R from the original 3.8R of this trade set up.
Thanks for reading and remember to 2 simple rules to increasing your probability of success! Go with the higher timeframe and multiple layers of analysis.