A trend is easy to see after the fact and harder to confirm while it is happening. This checklist gives seven yes-or-no checks you can apply before taking a trend-following trade. It does not predict direction; it helps you skip weak setups.
TL;DR -- Key Takeaways
- Check the higher timeframe first, then the one you trade.
- Look for a series of higher highs and higher lows (or the reverse for a downtrend).
- Use one trend filter, such as a moving average slope, not five.
- Check strength with a tool such as ADX, and check location relative to nearby levels.
- If more than one check fails, stand aside.
The Checklist
1. Higher timeframe direction. Does the chart above your trading timeframe point the same way? See multiple timeframe analysis.
2. Structure. Are swing highs and lows stepping in the trend direction? A break of the last swing against the trend is a warning. See swing trading strategy.
3. Trend filter. Is price on the correct side of your chosen moving average, and is the average sloping in the trend direction? See moving average strategy.
4. Strength. Is the trend strong enough to trade? An indicator such as ADX is one option; test your threshold. See ADX indicator.
5. Location. Is price close to a level that could stop the move? Trading into a nearby level reduces the room to run. See support and resistance strategy.
6. Entry candle. Did the entry candle close in the trend direction after a pullback, rather than being a large candle after an extended move? See entry timing strategy.
7. Calendar and conditions. Is a scheduled release due before expiry, and is volatility in your tested range? See news trading strategy.
Scoring
Use a simple rule: trade only when all checks pass, or when no more than one fails and you wrote down why. Record the score in your journal. See strategy journal template.
Limits of a Checklist
Passing all seven checks does not make a trade likely to win. Trends end, and a contract is decided over a short window. Compare your win rate with the break-even rate after payout; see risk to reward ratio for binary options.
Avoid adding checks until results look good on past data. See overfitting a strategy warning.
Testing the Checklist
Run it on a fixed history and record how many setups pass. Compare results of trades that passed all checks with trades that passed all but one. Check the sample size before drawing conclusions. See strategy sample size and statistical significance.
Frequently Asked Questions
How many confirmations do I need?
Enough to define the setup, but not so many that you never trade. Test the number.
Can I use a different timeframe pair?
Yes. Choose a higher timeframe a few steps above the one you trade and keep it fixed.
Does a strong trend guarantee a win?
No. A trend can reverse within one expiry.
What if the checks disagree?
Stand aside or reduce size according to your written rule.
Related Reading
- Trend Following Strategy -- trading with the trend
- Trend Line Strategy -- drawing and testing trend lines
- Combining Multiple Indicators -- avoiding redundancy
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