Tag: indicator strategy

Tag: indicator strategy

Does reversal trading strategy actually work? What is the best way to spot reversals? Trading reversals can be a difficult task and many traders will recommend trading the trend instead. On the Trading Rush channel where we tested many different trading strategies 100 times to find their win rates, I tested strategies as a trend following strategy and I used the 200 period moving average to do that. If you haven’t watched them, go watch now, and subscribe to the Trading Rush channel, because we test many strategies and trading indicators on this channel to find their win rates and you don’t want to miss that. But sometimes trading against the trend can be more profitable if price makes a big move in the opposite direction.

But as you already know, predicting a reversal point on a trading chart is almost impossible, because if there is a catalyst moving the market, price can move in one direction for a long period of time.

For example, let’s say price is in an uptrend, it makes higher swing highs and higher swing lows. Now, if the price starts to go sideways, some traders will look for reversal patterns like the double top pattern. Double top patterns can be really effective when used correctly, but in this example where the market is in a strong uptrend, how do you know the double top pattern is formed at the end of the trend? There is a good chance the price can go sideways, or give a small pullback instead of a reversal and can continue to move in the upward direction. Because of this, new traders are usually recommended to trade with the trend.

Since trend is your friend, instead of trading against your friend, what if I told you, that you can call yourself a reversal trader while trading the trend at the same time? Because, that’s what many professional traders do, especially the one selling the courses. Don’t get me wrong, there are reversal traders who trade actual reversals and make profits. But then there are traders who will trade reversals and trend at the same time. This is one of the most effective ways to catch the big move in trading. For example, let’s say bill the first wants to make money as a reversal trader. He finds a stock or forex pair where market is in an uptrend. Similarly, there is bill the second, who also wants to trade the reversal. He finds a different pair that is also trending upwards. At first glance, both of these charts look very similar to each other. Lets say, when the market goes sideways, a double top pattern is formed. Since double top pattern is a reversal pattern, both bill the first and bill the second take a short position.

Now remember, both of these charts were in an uptrend, so when the double top pattern occurred, on the first chart, instead of price making a big move down and starting a new downtrend, price reacted to the trend line and moving average supports, and simply went in the upward direction and continued its uptrend. On the other hand, price on the second chart actually gave a reversal and made a big downward move. On the first chart, bill the first made a loss. But on the second chart, even though the charts looked very similar at the first glance, bill the second made a big profit.

In this example, to understand why one reversal worked and other one didn’t, we will have to switch to a higher timeframe.

If we look at first chart where bill the first lost money, you can see that the price is in a strong uptrend on the higher timeframe. Furthermore, it has just touched a support area and has enough room to move higher.

On the other hand, if we look at bill the second’s chart on the higher timeframe, you will noticed that unlike the first chart, this chart is in a strong downtrend. Not only that, but it recently touched a strong resistance area.

On the first chart, even though there was a double top reversal pattern, the price was in a strong uptrend on the higher timeframe which decrease the probability of giving a reversal on entry timeframe. In other words, bill the first lost his trade.

Now on the second chart, even though we had similar price action, the price did make a big move down and the reversal worked, because this reversal on the higher timeframe was actually a small pullback reversal in a strong downtrend. And since this pullback reversal was near a strong resistance area, the price made a big move down. In other words, bill the second made money with the reversal, because he analyzed the market a little bit better by using multi-timeframe analysis.

There are many people who will sell you a reversal course but you will probably never make money, because in reality when they show you their reversal trades, the trades are actually trend following setups on higher timeframes. They won’t tell you this because they want you to keep paying them money while you keep figuring out why your reversal trades don’t work.

There are trading setups that actually work without any multiple timeframe analysis. For example, let’s say there is a company whose stock has fallen due to some events. The company has a good reputation and its stock was trading at 500 dollars at one point. Due to some event that made the company employees stuck at home, the company made a loss, and the stock price is now near the 100 dollars mark.

Now 100$ on a stock is a psychological number. Numbers with multiple zeroes at the end usually work as a psychological support and resistance levels. Since this company had a good reputation and will probably make money when the employees come back to work, people will be interested in buying at the 100$ support level. Since we know this support level has a higher chance of working, we can look for reversal trading opportunities near the 100$ mark. Even if the price doesn’t immediately make big move in the opposite direction, there is a high chance that there will be a small push up, since many traders will be interested near this level, as the 100 dollars mark will be clearly visible on all timeframes.

There are many other popular reversal patterns like the channel and the trend breakout. But like I have said in my previous videos, just because a price breaks a tiny line you drew, doesn’t mean the price is going to make a big move in the opposite direction. Price can simply move in the sideways direction, and most of the time, it does.

Reversals are part of trading, and there is a saying that goes something like “price can’t go in one direction forever, it has to reverse at one point”. Well yes, but actually no. It doesn’t matter if the price can go infinitely in one direction or not, to trade reversals, what matters is how accurately you can predict a reversal point in a trend. In reality, most retail traders can’t predict the accurate timing of a trend reversal, and even if they could, many probably won’t be able to tell if it’s a reversal or just a small pullback. When you see a reversal pattern such as a double top or double bottom, it is a good idea to exit your open positions, instead of predicting the new big move with a new position.

So, when trading reversals, it is a good idea to do multiple timeframe analysis to get the big picture. Otherwise, there is a chance the you will end up trading against a strong trend of the higher timeframe. Furthermore, since trend is your friend and since trend is where most money is made, it is a good idea to trade the reversal of a pullback, instead of trading the reversal of the entire trend. This way, you will have a higher chance of making money in trading.

That’s all. Now you know more about reversal trading. Like the video if you liked it, subscribe and ring the notification bell to see more trading videos. Check out other videos on the Trading Rush channel to see more videos like these. You should check out the 5 steps trading strategy that can help you make more money as a day trader. And thanks for supporting the Trading Rush channel on Patreon. You are awesome!

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4 USEFUL Trading Breakout Tips that can Make You MONEY in TRADING

Post author By Trading Rush
Post date September 6, 2020

4 breakout strategies trading rush

Tag: indicator strategy

If you find yourself in a position, where you enter a trade, but it immediately goes in the opposite direction, before finally going in your favor? Well, then this video will make you better at trading. Lets look at a theory. Lets say, you saw some strong support and resistance areas and you are waiting for the price to break those levels. You put your money in a position when the price gives a break out. The price is breaking out of a resistance level, but instead of moving further in your direction, it turns around as soon as you enter the trade and hits your stoploss.

To understand why price goes against you after a breakout, we will first have to understand what actually happens inside a range breakout. Since price ranges after a trend, let’s assume that some traders took long positions in an uptrend. After a while, the price gave a pullback near a support level after touching a resistance area, but then struggled to make a higher high. After getting buying and selling pressure at the support and resistance levels, the price simply moves sideways. Any beginner trader can tell, that this is a range market, and price will make a big move after it breaks these support and resistance levels.

But here’s the thing. Some traders who bought when the price was trending, or traders who bought at this pullback, will still have an open position. In a range market, price can either break up, or break down. In this example, since price hasn’t given any signs of reversal, traders who are holding a long position, will set a stoploss just below the breakout support.

Then there are second kind of traders. These traders are willing to sell at a resistance level, hence the selling pressure that is stopping the price to go higher. The traders who are selling at this resistance level, will most likely set their stoplosses, just above the resistance level.

Now here’s a big problem. In these kinds of scenarios, the stoploss of a retail trader becomes obvious and vulnerable. In a breakout, the people who are selling at resistance, are setting their stoploss just above the resistance. And the people who are buying at the support, are setting their stoploss just below the support level.

Now lets say, there is bill. Bill, is the big banks. Bill is the one who trades in very large quantities. Bill the big banks, sees the breakout opportunity. He sees that there are many stoploss orders waiting to be triggered. Now remember, big banks actually trade in very high quantities than the retail traders. So when an institutional trader enters with a very big position, the price makes a big move, especially on smaller timeframes.

In this scenario, when the price comes near the support. Bill the big banks, creates a selling pressure that leads to a small downward move. But since there were a lot of retail traders waiting for a breakout, 2 things happen. Number 1, the people who had their stoploss orders just below the support level are taken out. Since a stoploss order in a long position, is a sell order, more selling pressure is created at a breakout.

Number 2, the people who wanted to sell at the breakout, finally sell, and create even more selling pressure. These traders will set their stoploss just above the breakout level. The selling pressure leads to a big red candle.

Now, what do you think will happen, if the big banks creates a buying pressure as soon as the breakout happens? When this happens, the traders who entered after the breakout candle, are taken out because they had a stoploss, just above the breakout level. Since stoploss order of a short position is a buy order, a new buying pressure is created. And if the top resistance is crossed, even more buying pressure is created as the traders, who had a stoploss above the resistance, are taken out, and new orders are created at the new high. The retail traders who had open orders below the support levels, basically got played.

Beginner traders who get to experience this part of the market, sometimes complain that their broker can see their open orders, and is trading against them. No, that’s not really the case. Your orders are simply too predictable.

So how can you avoid this from happening? Well, the easiest and effective way of trading a breakout, without getting played, is to wait for the price to react in your favor.

There is a chance that price will reverse after a breakout, but we cannot know that as a retail trader. If a breakout is going to work, In a downward breakout, the level that is broken will now act as a resistance level. So, it is better to take the short position, when the price comes back to this resistance area, and struggles to go higher. Then you can look for an entry signal, like a engulfing candlestick pattern.

Now some traders will say, why not just put stoploss orders far away from the obvious support and resistance levels? Well, if you do that, you will not get a decent reward to risk ratio.

What about trend breakouts? If a down trend that was respecting the trend line resistance, suddenly breaks out, will the price reverse? No, unless the down trend was a weak pullback of an uptrend, or if it is at a strong support level, a simple trend line breakout will have a low chance of reversing the price direction completely. You see, when the price breaks the trend line support or resistance, it doesn’t always has to mean that price will take a 180 degree turn. It can simply mean that the trend is getting weaker, and can go side ways.

Now imagine a second scenario. What do you think will happen, when price breaks out of an all time high resistance level, and makes a new high for the first time in its history? It will be on the news. Many people who have never traded in their entire life, will take long positions in that asset. But what if price doesn’t go further up? What do you think will happen then? Well, first of all. The people who took trades only looking at the news, will panic. When the price comes back below the previously broken resistance level, many will cut their losses. This will create a huge selling pressure. and since this is a panic sell, you can capture a good profit when the price makes a big move down.

A lot of beginner traders are told to trade the trend breakouts, without completely explaining what kinds of breakouts are better. The trend breakouts that have a higher chance of working, are probably the pullback trend breakouts. In a strong uptrend, if the price gives a small pullback, you can trade the break out of that pullback. This way, you will take trade in the direction of the long term trend, which will increase your chances of making a profit.

Now lets imagine another scenario. This time, when the range is formed after an uptrend, there is no Bill the big banks, or any bank to take trades against you.

Let’s say, someone draws the support and resistance levels, at the tails and body of the candles.

When they take positions at the breakout, the price goes in the opposite direction again. But this time, it’s because the beginner trader is too much focused on their favorite timeframe. You have to understand that not everyone is looking at the exact chart as you are. The support and resistance you draw using tails and bodies of the candles, won’t always work, because they will look very different on different timeframes.

If you are waiting for a breakout to happen, make sure the support and resistance you are looking at, can be easily identified on other timeframes. Furthermore, when the breakout happens, make sure it is visible on different timeframes as well. Because sometimes, a successful breakout on one timeframe, can mean something else on other timeframes. This can lead to a lack of high volume and interest near the breakout area.

After understanding these kinds of scenarios, you will be able to tell when a possible trap is set, and with patience and good money management, you will probably make money with the breakouts.

That’s all. Now you know a little more about breakouts in trading. Like the video if you liked it. Subscribe for more trading videos, and check out other videos on the Trading Rush channel, where we tested many different trading strategies 100 times to find their real win rates. Thank you very much for watching.

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I took 100 OPPOSITE Trades of a NOT Good Trading Strategy

Post author By Trading Rush
Post date August 24, 2020

opposite trading strategy trading rush

Tag: indicator strategy

What will happen if you take trades in the opposite direction? Will you make more money? Lets say, there is a trading strategy that doesn’t have good win rate. Like the Basic Aroon Strategy we tested 100 times in the last video. Since that strategy only produced a win rate of approximately 40 percent, one of the top comments on that video, was to test it again, but by taking trades in the opposite direction of the strategy. Surely the 40 percent win rate will turn into 60 percent, right? Well, why don’t we find out.

In this video, I took 100 trades in the opposite direction of the Aroon Trading Strategy, and here’s what happened. I’m not going to explain the strategy in this video again, since YouTube will think I’m repeating stuff again. But if you want to learn more about the aroon indicator, watch my previous video on the Trading Rush channel.

In my Aroon video, since I used the Parabolic Sar indicator to set the stoploss, the parabolic sar when taking opposite trades, will be on the opposite side. Let me explain. In the proper aroon setup, when aroon gives a buy entry signal, the parabolic sar is below the price. In this setup, we can easily set the stoploss at the parabolic sar. But if you are trying to take opposite trades, the parabolic sar is on the opposite side. So to fix this problem, I have simply set the stoploss at the same distance in the opposite side, as I would set it in a normal aroon setup.

As always, I have used the Official Trading Rush App for backtesting, and while the backtesting clip is running, here are some important points I found by taking opposite trades.

Number 1. I took trades on the same pair, and on the same time frame. Since I bought when aroon said go short, and sold when aroon said go long, I lost most of the trades that I had won with proper aroon setup. That’s predictable, but here’s the interesting part.

Number 2. You might think, that since I lost the trade I had won last time, the lost trades in the last video will be profitable this time. Well, yes, but no. In my last video, I said, I lost most of the trades because Aroon was giving entry signals near the end of the trends. When I took opposite trades, the trades I lost in the last video were profitable. But not all of them.

You see, when a trend comes to an end, the price doesn’t make a big move in the opposite direction immediately. It can simply go sideways before going in the opposite direction.

I always backtest with the reward risk ratio that is more than 1, since most traders will use something that is greater than 1. What this means is, the price has to make a bigger move in the direction of our entry. Some of the trades I lost in the previous aroon video were profitable this time, because price had made a big move in the entry direction. But sometimes, the price was moving side ways. And since I had a reward risk ratio of higher than 1, in the sideways market, my stoploss was hit before the profit target.

So, after taking trades 100 times with opposite aroon trading strategy, I still got the win rate of approximately 39 percent. The proper Aroon strategy had win rate of approximately 40 percent. This strategy is also a hit or miss. The profit graphs of both of these strategies also look very similar if we flip it upside down.

So what did we learn from this experiment? Something I have said in one of my previous videos. Most of the time, price is in a range. And most money is made, when the price is trending. So you can’t simply take trades in the opposite direction of a not good strategy, and turn it into a money making machine.

That’s all. Now you know a little bit more. Like the video if you liked it. Subscribe for more trading videos, and to see other strategies and indicators tested 100 times. Download the Trading Rush App if you want to test your strategy. Thanks for watching, and special thanks to the amazing people who support the Trading Rush Channel on Patreon. You make these videos possible.

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VOLUME Trading to find the BIG and Smart Traders

Post author By Trading Rush
Post date August 15, 2020

volume trading strategy trading rush

Tag: indicator strategy

In my VWAP video, i talked about how and why institutional brokers trade at the VWAP line. And how you can use that information to trade when the big players are trading. Volume on a trading chart is pretty useless on its own. But if you connect the volume with the price data, you will find some of the key levels on a trading chart and can spot where the big players are trading. Individual traders with their small number of shares, can’t make a huge difference on a stock or Forex pair, but if you buy and sell where the big and smart traders are trading, you will make more profit, because price tends to make a big move when the institutional buyers enter the market.

But Before we learn how to find where the big money is at, we will first have to understand how the volume actually works.

Lets say, bill buys 200 shares at 10 dollars, and bill the second sells 200 shares at 10 dollars. Since bill bought 200 shares and bill the second sold 200 shares at 10 dollars, the volume traded at 10 dollars is 200. It is not 400. A lot of new traders think that the volume is 400, since 200 plus 200 equals 400.

Purchasing few shares of a stock is very similar to purchasing few pencils from a shop. And it is very similar to the math guy from the textbooks. When the math guy pays 200 dollars to buy 200 watermelons, the sellers gives him 200 watermelons. The volume traded here is 200, since the seller sold 200 watermelons, and the buyer bought 200 watermelons at 200 dollars.

Like i said before, this kinda of volume data on its own is pretty useless on a chart, unless you also take price data into consideration.

Here’s how to use the volume and price data together on a trading chart.

Number 1. When the price increases, and the volume also increases, the price is considered to be bullish.

Number 2. When the price increases, but the volume decreases, the price is considered to be bullish, but only the small traders are buying. Big players with their large amount of shares are not buying.

Number 3. When the price decreases, but the volume increases, the price is considered to be bearish.

Number 4. But when the price is decreasing and the volume is also decreasing, the price is considered to be in a downtrend, but only the small traders are selling. Big players are not participating in that move.

Now by increasing and decreasing volume, I’m not only talking about the volumes of individual candles, but also the volumes of all the neighboring candles.

A lot of new traders, will only look at the volume of the candle that they are taking the trade on, and not the volumes of other nearby candles.

Sometimes, beginner traders are told that they should pay attention to the volume when the enter trades. If you enter on a candle and its volume rises, it is a good sign, as there might be other traders entering at the same time. And if the volume does not rises, your trade entry might be wrong.

This statement is kind of misleading. When you enter trade on a candlestick pattern, there is no rule that the institutional buyers and other traders will or should take positions by looking at the same candle. So the chances of volume rising at the same time you take the position is highly unlikely. If many traders are interested in buying at the same area as you are, you will see increase in volume near your entry area, and not on your entry candle only.

Since institutional buyers trade in very high quantities, price tends to make sudden big moves, when the big players enter the market. On smaller time frames, these sudden movements can easily take out your stop loss. But if you spot the increase in volume at the right time, you should take this opportunity by taking a position. If you get lucky, you will ride the whale.

One of the situations where finding higher volume is really helpful, is during the formation of the engulfing candlestick patterns.

A bullish engulfing pattern is a candlestick pattern that forms when the smaller than average red candle is followed by a large green candle. This green candle is so big that it covers or engulfs the entire body of the previous candle. Bullish engulfing pattern indicates a possibility of price moving higher.
A bearish engulfing pattern is just opposite of the bullish engulfing pattern.

Not all engulfing patterns are worth trading. To filter out false engulfing signals, you should take a look at the volume.

Let me give you an example.

Lets say, you are waiting for the price to reach a support level. To make sure the support has a high chance of working, you look at the volume.

As the price is coming down to your support area, you see the volume decreasing. When it touches your support area, a bullish engulfing pattern is formed. An Engulfing pattern is a good sign as it indicates a reversal. But this one is even better, because this bullish engulfing pattern has higher than average volume on the green candle.

This means that there is high buying demand near the support area you drew. After this engulfing pattern, there is a high chance that the price will move higher.

In this example, you saw the decreasing volume near the support area. But what if it had kept increasing even after touching your area?

If you saw the price moving down towards your support with higher volume. It indicates a bearish pressure. In simple words, there is still a demand for selling near your support area. If this is the case, the probability of your support area working and price reversing are very low.

Volume can also help you identify the false breakouts. If price is in a range for a while with a low volume, and you see a breakout with an average volume, it indicates a possibility of it being a false breakout. But if a candle breaks out of a range with higher than average volume, the chances of price moving further in the breakout direction becomes higher.

If you are trading using the volume, here are some important points you should note.

Number 1. Volume can be used to analyse the market trend, and reversals and your support and resistance levels. Further more, volume can also be used to make sure the pullbacks in a trend, are actual pullback and not reversals.

In an uptrend, if price is moving higher, and gives a pullback with lower volume, it’s a sign that price can still move upwards. But if the pullback has higher than average volume, it can indicate a start of a new downtrend.

Number 2. Volume can also be used to find the smart money and the dumb money. If price increases and volume increases, it a bullish trend. If price increases, but volume decreases. It’s a bullish trend, but there is no smart money participating. If price is decreasing, but the volume is increasing, it’s a bearish trend. If the price is decreasing, but the volume is also decreasing, its a bearish trend with dumb money. Big players are not participating in this move.

Number 3. Avoid trading on low volume days and take trades on higher volume days.

Number 4. Volume can be a lot higher and price movement can be more volatile on stocks during events or news releases. If you trade on smaller time frames, you should keep an eye on these news releases that impact the volatility.

Number 5. Volume is usually higher during market openings and closing, and is low during lunch hours. If you are a beginner, you should probably avoid trading during lunch hours and only trade when the market is trending with a high volume.

That’s all. Now you know a little bit more about volume in trading.

Subscribe for more videos. Like the video if you like it. Download the Trading Rush app, or checkout the Trading Rush Website for more trading videos. Thanks to all the Patrons who support trading rush on Patreon, and thanks to everyone for watching.

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Supertrend Indicator Tested 100 Times so you don’t have to…

Post author By Trading Rush
Post date August 11, 2020

supertrend indicator trading strategy trading rush

Tag: indicator strategy

Well, I tested supertrend indicator 100 times, and the results I found were pretty interesting. In this video, you will learn about the supertrend trading strategy, it’s real win rate, and some disadvantages I found after testing it 100 times. But first of all, if you haven’t watched my ATR indicator video, maybe considered watching it before this video, since Supertrend indicator relies on the ATR values to calculate its values. And maybe checkout other videos where i tested other trading indicators 100 times to find their real winrates. You can watch them on the official Trading Rush Website.

If you are new to trading, and have never heard of this indicator before, here’s how the popular Super Trend Indicator looks like. Now, on some trading platforms, super trend indicator can look a little bit different. But the basic indicator will look something like this.

A simple line that changes its color now and then. These colors are usually red and green.

The supertrend indicator is very similar to a moving average. and just like a moving average plotted on a chart, supertrend indicator will also give crossovers time to time.

When the Supertrend line is below the price, the color of the indicator will turn green. Similarly, When the Supertrend indicator is above the price, the color of the indicator will turn red.

But what do these changing colors mean? Well, as the name of the indicator suggests, the Supertrend indicator is trying to show the current Price Trend. It is trying to show the direction of the trend. When the supertrend indicator is green in color, and is below the price, the price is considered to be in an uptrend.

Similarly, if the supertrend indicator is above the price, and is red in color, there is a downtrend going on.

Now to keep it simple, that’s all supertrend really is. An indicator to find the direction of the trend. But people have figured out a way to use it as an entry signal generator. That’s right. The simple supertrend entry strategy goes something like this.

You buy, when the supertrend indicator flips below the price, and the color of the indicator changes to green. Set your stoploss, at or below the supertrend indicator.

And you sell, when the supertrend indicator flips above the price, and the color of the supertrend changes to red. Set the stoploss, at or above the supertrend line.

Now once you have entered the trade, how can you exit using the same indicator? Well, if you are not the trader that uses a fixed stop loss and profit target, you can use the supertrend line to trail your stop loss.

When the supertrend indicator turns green and flips below the price, you can enter the long trade, and trail the stoploss just below the supertrend line. The line will eventually flip over the price, and then you can completely close your long position.

If you have entered a short position when the supertrend flipped to red color, you can trail your stop loss using the supertrend line.

Now if you have been trading for a while, you know we can’t take every trade at every entry signal given by the supertrend indicator. Using the indicator just to find the trend direction is fine, but using it as a entry signal generator on its own can be bad idea.

If you take every entry signal given by the supertrend, you will end up taking short positions in a strong long term uptrend, and long positions in a strong long term down trend.

So to filter out the false signals given by the supertrend indicator, we will use the 200 period exponential moving average.

200 period moving average is widely used to find the direction of the long term trend. If the price is above it, there is an uptrend going on, and if the price is below it, there is a downtrend going on.

So here’s how the modified supertrend indicator trading strategy goes. And I have also tested the supertrend indicator 100 times in the same way, and the results were pretty impressive.

In the long setup, only buy when the supertrend line turns green and goes below the candles, and the price is still above the 200 period moving average. Set your stop loss, at or below the supertrend line.

In the short setup, only sell when the supertrend indicator turns red and flips above the candles, and the price is still below the 200 period moving average. In this short set up, you can set your stoploss at or above the supertrend line.

So using the Trading Rush App to track my trades, I tested the supertrend strategy 100 times on the Euro JPY pair. But I quickly ran out of market data and had to switch to the Euro USD pair.

When I tested other indicator strategies 100 times, I used a fixed stop loss and profit target. So to keep things similar, I have used a fixed profit target and stoploss as well.

In the Trading Rush App, you can see the winrate and the profit graph changing as I take more trades. If you haven’t already, you can download the Trading Rush App from the Play Store, or using the link in the description. You can use it to keep track of your trades while backtesting your trading strategy.

While the backtesting clip is running, here are some important things and disadvantages I found about the Supertrend indicator.

Number 1. Supertrend Indicator, only shows the current direction of the trend. It cannot predict the trend direction. This is why it is better to use the 200 period moving average with the supertrend indicator if you are using it as an entry signal generator.

Number 2. You cannot blindly take every trades given by the supertrend. If you do, you will end up taking trades in the opposite direction of the long term trend as price gives many pullbacks in a long term trend.

Number 3. While testing this strategy 100 times, I found that I was losing trades, and was not getting a good risk to reward ratio, because the stoploss i was setting using the supertrend line was sometimes too far from the entry. Since price does not move infinitely in the same direction, most of the time, my stoploss was hit as price reversed before hitting the profit targets. So maybe consider setting your own stoploss using simple price action levels, when the Supertrend stoploss is way too big.

So after testing the supertrend indicator 100 times, I found that the win rate of the supertrend strategy is approximately 46 percent. Since I used the 1.5 to 1 reward risk ratio with other trading strategies in my previous backtesting videos, I have used the same 1.5 to 1 ratio with this strategy as well. And because of that, even with a win rate of 46 percent, I was able to make a profit. During this backtest, I was able to win 7 trades in a row. but also lost 7 in a row. Even though the supertrend didn’t produce a very good winrate like some other indicator strategies I have tested before, the Supertrend Trading Strategy is still a profitable strategy.

That’s all. Now you know more about the super trend indicator. Like the video if you liked it. Subscribe for more videos. Check out the Trading Rush App and Trading Rush Website for more back testing videos. Thanks for watching, and thanks to all the patrons who make these videos possible by supporting the channel on Patreon. You are Awesome.

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Divergence Trading Strategy – Trend Trading Exit Indicator?

Post author By Trading Rush
Post date July 31, 2020

trading divergence trading strategy

Tag: indicator strategy

What is Divergence? Can it make you better at trading? If you have been trading for a while, you have probably heard the term divergence. It is not something you will get to see frequently on a trading chart. If it does appear in front of you, you should be very careful, because it can indicate a possible change in the direction of the current trend.

To understand how the divergence can help us in trading, we will first have to understand what divergence is.

The disagreement between an indicator and the price movement is called divergence. In simple words, Divergence occurs, when the price is saying one thing, but the indicator is indicating something else.

Let me explain.

Usually, in an uptrend, you will see oscillators and the price indicating the same direction of the trend. You can tell this by connecting the higher highs of the price and the higher highs of the oscillators. On this chart both the indicator and the price, are making higher highs. Or in other words, the oscillator looks very similar to the price movement of the chart.

But sometimes, you will see something like this. Here, if you try to connect the higher highs of the price and the indicator, you will notice that you can successfully connect the higher highs of the price, but the oscillator does not have a higher high. It has made a lower high. It has made a move that is not similar to the movement of the price.

This is what a divergence looks like. Now They are two types of divergence. When price makes higher highs, but an oscillator makes a lower high, it is called a negative divergence.

Similarly, In a down trend, when price makes lower lows, but the oscillator makes higher lows, it is called a positive divergence.

But how can this information be useful? If we see a divergence while trading, what should we do?

Well, here are few things we can do. When divergence occur, there is a chance that the trend can reverse, or go sideways.

In an uptrend, if you see a negative divergence, there is a high chance that the uptrend will turn in a sideways trend, or go in the opposite direction. If you have a position open, you should maybe consider closing it, or setting a stop loss, because there is a chance that the price will stop moving further in your favor. If you were thinking about taking a long position, it is good idea to wait a bit, as price can go lower.

In a downtrend, If you see a positive divergence, there is a high chance that downtrend will end soon, and it will be a start of a new trend. If you are already in a short trade, make sure you watch it closely, and adjust your stop loss carefully, as the price can go in the opposite direction and if you were thinking about taking any short trades, maybe consider watching the price movement from the sideline, and wait for a better entry condition, where there is no divergence.

Now, a lot of people, will tell you to take trades in the opposite direction of the trend when the divergence occur. I don’t recommend it, because there is a big problem with taking trades like that.

You see, when you spot a divergence, price won’t immediately go in the opposite direction. It can continue to move in the same direction, before finally changing the trend direction and when it will change the direction, there is no guarantee that it will go in the opposite direction. The price can simply go sideways for a while, and can continue to move in the same direction as it was before.
So, what’s the use of the divergence then?

Well, divergence is not that good when it comes to trade entries, as the exact time of the direction change is difficult to predict. But what you can do when divergence appear, is to avoid taking new trades, and adjust the stop loss of your open trades.

Here’s an example. Lets say, you are in an uptrend for a while. In this uptrend, you spot a negative divergence. Now you have more information on the trend direction. Now you know that there is a chance that it can reverse. With the help of this new information, you either close you long position and book a profit, or you adjust the stop loss to break even, so that you won’t lose money if the price comes down.

Now, what indicators are the best to spot divergences on a chart. Well, RSI, MACD, CCI, money flow index and Awesome Oscillator are great to spot divergence on a trading chart. To keep things simple, you can use RSI or MACD.

Here’s how divergence looks on these indicators.
As you can see, a good divergence can be easily spotted on all of these indicators. If you want to spot divergence while trading, you don’t have to look at every single one of these indicators. Using MACD or RSI will get the job done.

Here are some important points to remember about trading divergence.

Number 1. You should not trade with divergence alone. You should use it with other indicators. Divergence should be used to analyse the price movement better.

Number 2. Divergence won’t appear for every price reversal.

Number 3. If divergence occur, it does not mean that price is going to reverse, it can simply go sideways.

Number 4. It is very difficult to spot the exact timing of the reversal once you spot the divergence.

Number 5. If you spot a divergence, maybe consider closing or adjusting your open positions, as price can stop moving further in your favor.

Number 6. It is better to not act on divergence that are spotted in a range market.

Number 7. It is not an entry signal generator, so don’t use it as one.

Think of divergence like this.

Lets say, You are driving a car. When you step on the accelerator, the car goes faster, but the speedometer goes down. As you can see, there is a disagreement between the actual speed of the car, and the speedometer that is indicating the speed. This hints that there is something wrong with the car, or with the world the car is driving in.

Similarly, when you see the price movement, and an indicator on a chart at a disagreement, you simply wait, until you see them in an agreement.

That’s all. That’s what Divergence is all about.
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Best Part Of The MACD Indicator Trading

Post author By Trading Rush
Post date July 29, 2020

best part of macd indicator trading strategy