Home > Lessons from the trading floor > day trading with a trend filter

day trading with a trend filter

One of the most common reasons for day trading is volatility. This volatility is what produces opportunity. The shorter the time frame for a day trader the more trades that will present themselves. The reason for this is simple, the shorter the trend the more often the trend will change.

Think about it, a five minute trend will change much more often than an hourly trend. If you want to keep losses small use a shorter trend to keep your stop loss points tighter. The downside to this is that your profits per trade will be smaller also. There is nothing “wrong” with this, it is a very consistent method of earning a living. It is actually one of the methods we teach to our ETF traders.

No matter what style or trend you choose to trade two things must be presnt BEFORE you trade. Number one is you must know very clearly which trend YOU are trading before you get into a trade so that you will clearly know how strong or weak it is (which wil help dictate leverage) and you must be able to quickly identify when it has changed so you can change your bias.

The number two thing that must be present in your plan (no matter what time frame you identify a trend) is to have a trend filter in place. This is a big part of multiple time frame analysis. Get in the habit of using a time frame higher than the one you use for entry and exit signals. In other words if you use the 5 minute chart for entry signals, ONLY trade those signals in the direction of the 15 minute or hourly trend. You should filter out any signals in the opposite direction of the higher time frame trend.

Using a trend filter you will probably be trading less but the trades will be much higher probability.


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