Trend following is one of the oldest and most robust approaches in trading: identify the direction of the market and only trade in that direction, entering on pullbacks. It wins less than half the time in many markets, but the winners are larger than the losers.
Step 1: define the trend
Use the 4-hour chart and the 50-period exponential moving average (EMA). The trend is up when price is above the 50 EMA and the EMA is sloping up, with higher highs and higher lows. It is down in the opposite case. If price is crossing the EMA back and forth, there is no trend: do nothing.
Step 2: wait for a pullback
In an uptrend, wait for price to pull back towards the 20 EMA or a previous resistance that is now support. Do not chase candles that are already far from the averages.
Step 3: enter on confirmation
- Drop to the 1-hour or 15-minute chart.
- Wait for a bullish signal at the pullback area: a higher low, a break of the small downtrend line, or a strong bullish candle.
- Enter on the close of that candle.
Step 4: stop and target
- Stop below the pullback low (above the high in a downtrend).
- First target at 2R: twice the distance to the stop.
- Optional: close half at 2R and trail the rest behind the 20 EMA.
When not to trade it
- Before high-impact news on that currency.
- When the 4-hour chart is flat and price keeps crossing the 50 EMA.
- After three losses in a row: the market is probably ranging. Wait for a clean trend again.
Which markets suit it
Gold, the Nasdaq and major crypto pairs trend strongly at times and suit this method. Among forex pairs, GBPUSD and USDJPY often produce cleaner trends than AUDUSD, which spends more time in ranges.