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Turn Trade strategy is a mechanical trend trading strategy that looks to trade in the direction of the prevailing trend.
Having a mechanical trading system is very important because it gives you independence with respect to the markets since the markets tell a non-stop story and by having a mechanical system it removes the subjective analysis. Developing a solid mechanical trade strategy is critical to the success of any size trading account.
The best thing about the Turn Trade strategy is that even though it is a trend trading strategy, it tries to buy low and sell high, but it does so in the overall context of trading in the direction of the dominant trend. The setup makes use of the moving averages which is one of the most popular indicators among traders to gauge the market trend. It also uses Bolinger Bands to discover overbought and oversold conditions in the market and it uses multiple time frame analysis in order to time the market.
As we have established above, we use two sets of technical indicators.
Firstly, we use a simple moving average with a 20-period applied to the daily chart. In technical analysis, the 200-day moving average is regarded to be one of the most influential moving averages and since 20 is a multiple of 200 it carries a lot of weight as well. The 20-SMA includes a full month’s worth of trading data as well and it gives you a good indication of the average price of the current month.
The second technical indicator used is the Bollinger Bands, which are a volatility indicator utilized to spot overbought and oversold conditions. The Bollinger Bands are used on the 1h time frame and actually the Turn Trade setup requires two sets of Bollinger Bands, one with three standard deviations (3SD) and the second Bollinger Bands with two standard deviations (2SD). The two bands will form a trading channel that will contain the price action inside it for most of the time.
The buy setup rules:
The Sell setup rules:
Looking at the Daily GBP/USD chart below, we can notice that in the middle of April we broke above the 20SMA which means that the predominant trend is up and we’re only going to take long positions as per the Trade Turn strategy.
Switching to the 1H time frame (see Figure 3) we’re going to wait for all conditions to line up before entering a long position. We can notice that at the first retracement into the lower 2SD-3SD Bollinger Bands a long signal is triggered and both of our profit-taking areas have been reached in the following hours.
The Turn Trade strategy demonstrates the power of trading with the trend and the advantage of using multiple time frame analysis to time the market. Trading with the trend also means fewer losses and that’s one of the main accomplishments of using the Turn Trade strategy.
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