Trend Surf Strategy

Written by Edward Gonzales

March 24, 2021

This pattern is similar to the TCE strategy but has some key differences. You can think of this pattern as “surfing” the trend of a currency pair. By “surfing” you can do a very good job of following the trend in the market and profiting from it. Additionally, the surfing pattern is very hard for algorithms and bots to detect, unlike the human eye that can find it quite easily. This means that we won’t have trading bots or high-frequency traders trading against our strategies. This happens very often with simple strategies or using lone indicators. 

This is a manual trading strategy, meaning you must actively monitor this trade and make edits to it in order to secure the maximum profits possible. Not all strategies are like this. You can still set it up in 3commas smart trade terminal, it will just require that you edit your take profit goals and stop loss later.

A pattern you will see very often in the markets is what I’ll describe as price “surfing” a moving average. Since this pattern happens quite often, this is also one of the strategies that you can trade quite often as a day trader. Here’s what it looks like when price is surfing a moving average:

The moving averages on the chart in this photo are the 9, 26, and 50 MA respectively, counting from the top. As you can see, price is bouncing repeatedly off of the MA’s in the sections highlighted. Price touches the moving averages finding support, then moves slightly higher, then comes back down and finds support at the moving average again, then moves slightly higher again, and it repeats this pattern. This is what surfing the moving average means, price is essentially “surfing” the moving average as it goes up. While this photo showcases moving averages (MA) it can also be used with exponential moving averages (EMA).

This pattern is usually only found on clear uptrends or downtrends. If you find it in other situations, you shouldn’t take the trade. As you can see in the chart above, the moving averages cross in the green circle and are all in order in a clear upward direction rarely touching each other. This is a sign of an uptrend, and that’s how you want them to look like when trading this strategy. 

Uptrend Surfing Rules

Here are all the rules for trend surfing strategy on an uptrend:

  1. The 15-minute chart must be on a clear uptrend.
  2. The 1-hour chart must be on a clear uptrend.
  3. The ADX indicator is above 25.
  4. The 15-minute candles must be surfing off the 9 or 26 EMA. If the candlesticks break below the 26 EMA, then the formation is no longer valid.
  5. Price must be forming a flag formation.
  6. A buy order must be placed above the high of the first corrective candle that finds support on the 9 or 26 EMA.
  7. Place your stop loss below the low of the candlestick you placed your buy order above.
  8. When placing your take profit order, it is good practice to at least place it as far from your buy order as your stop loss. 

Let’s go over the uptrend surfing rules one at a time with a little more depth.

Rule #1 — The 15-minute chart must be on a clear uptrend

This strategy trades on the 15-minute time frame, so this step is essential. To see whether or not the 15-minute time frame is on a clear uptrend, plot the 9 EMA, 26 EMA, 50 EMA, and the 200 SMA (simple moving average). If the 9 EMA is above the 26 EMA, the 26 EMA is above the 50 EMA, and the 50 EMA is above the 200 SMA, then the 15-minute chart is on a clear uptrend and we can potentially find a trading setup. Remember, the MAs should be in the following order:

9 EMA > 26 EMA > 50 EMA > 200 SMA

Rule #2 — The 1-hour chart must be on a clear uptrend

The second rule is essentially the same as the first – you will plot the exact same moving averages and be looking for them in the exact same order. The only difference, is that now you will be plotting them on the 1-hour timeframe instead of the 15-minute. Technical analysis states that it’s essential to use multiple time frames to analyze data. By confirming that the 1-hour is also on an uptrend, we’re certain that we’re not trading against the trend.

Rule #3 — The ADX Indicator is above 25

The ADX indicator measures the strength of a trend, so we will use it to determine if a trend is currently weak, or strong. If the ADX line is below the 25 level, then that means the trend is currently weak. If the ADX line is above the 25 level, then that tells us we have a strong trend. When trading with this strategy the ADX indicator must be above 25.

Rule #4 — The 15-minute candles must be surfing off the 9 or 26 EMA

As I explained briefly earlier, the key of this strategy is finding areas where price is surfing the moving averages. At first it will be hugging the 9 EMA, and then move slightly higher. After a couple candlesticks, the price will come back down and touch the 9 EMA again. This will happen repeatedly for some duration.

This only happens with smaller periods for the moving averages, such as the 9 or 26. You will almost never see this happen with the 200 EMA. Since the period is small on these moving averages, that means that the price of the moving average is much closer to the current price, which allows for this surfing pattern to occur.

Even though we plot 4 moving averages in this strategy, we’re only trying to find price action that is surfing either the 9 EMA, or the 26 EMA. If price action is surfing the 50 EMA or 200 SMA, that is not the surfing we are looking for. The 50 EMA and the 200 SMA are only there to help us make sure that we are in an uptrend.

At times, price will not have a lot of volatility and will barely be moving higher. During these times, price will be continuously touching the moving average, not moving up or finding support on the moving average. These moments also count as price surfing the moving average.

How can we profit when the price is surfing a moving average? After price has bounced upwards off of the moving average, and is now retracing back to the moving average, that is when we want to look to enter. If price is already surfing the moving average, then there is a higher probability that price will keep surfing the moving average once price retraces back to it.

This is often the case, however, it is not always true. If price is surfing a moving average, and we entered whenever price retraced back to the moving average expecting support to be found every time, then we would not be profitable in the long run. There will come a point in time where the price will cross over an EMA, and then the EMA’s will cross each other signaling a possible trend reversal. However, there is a specific formation in these situations where the price action has a higher probability of bouncing back to the EMA called the “flag formation”.

Rule #5 — Price must be forming a flag formation

There are multiple rules when looking for a flag formation, but here are the basic rules. Don’t worry if they are confusing at first, there are photos to help you visualize the flag formation.

  • There are three or more impulsive candles that each form a higher high than the previous candle, with at least the first candle finding support on the 9 or 26 EMA. These candles do not all have to be green.
  • There are multiple corrective candles forming lower highs, until one of them finds support on the 9 or 26 EMA. If there is only one corrective candle that immediately finds support on the 9 or 26 EMA, that is also a valid setup.
  • The correction may not go below the low of the first impulsive candle, the 26 EMA, and preferably the 61.8% Fibonacci retracement level.
  • The formation is complete once the corrective candles stop forming lower highs, and a new high is formed.

Take a look at these photos – they are the same chart. As you can see in the second photo, inside the first flag formation the candlesticks find support on the 9 EMA, and after that we see a sort of wedge pattern inside the flag. There are bullish pin bars as well as bullish engulfing candlesticks in and around the flags. 

There is a small pullback inside the beginning of each flag. Higher highs are being formed by candlesticks surfing the 9 EMA after the pullback candlesticks. Then we see a lower high, and that is when the outbreak candles begin. In the first flag we have a candle close outside of the flag signaling another bullish outbreak. A second candle touches the support of the EMA, breaks out of the flag and closes outside of the first flag, creating the mast for the second flag formation. 

It might be easier for you to think of it like this: The higher highs are forming the mast that holds up the flag, while the lower highs form the flag itself. Once the higher high is formed, price is beyond the range of the flag and the formation is complete.

In this photo example, price would keep surfing the 9 and 26 EMA and keep moving up, giving us a winning trade. If you noticed, below the chart the ADX indicator that was above 25, so all of the rules were met to create this trade. Now that you understand what the formation itself looks like, let’s take a look at the entry and exit rules.

Rule #6 — Buy Order Rule

If you set up your initial take profit and stop loss orders at your trade setup, you can absolutely let those ride and take a small profit or a small loss. In this strategy, however, you should make edits to your smart trade  as it develops. You will need to move your take profit targets and stop loss up as the price of the currency pair you are surfing goes up. Moving your take profit and stop loss targets in a trending market is what the more advanced traders do in order to secure maximum profits. This is known as a “dynamic order.” A dynamic order simply means that you are not setting the take profit and stop loss orders and then forgetting about them, you keep changing them until one finally gets hit.

For this strategy, once we have a corrective candle that finds support on one of the moving averages, we check all the previous rules. If they are being followed, we will plot our entry. We set our take profit order above the high of the corrective candle, and our stop loss below the low of the same candle. If the following candlestick does not hit the take profit order and creates a lower high instead, then we will cancel our take profit order, and make a new take profit target order for this new candlestick instead. If price action is bullish, ADX is ascending over 25, if the 9 and 26 EMA’s are wide and far apart from each other, and especially if you see additional flags developing, you can move your take profit order higher as well as your stop loss order. We will repeat this process until the take profit finally gets hit due to trend reversal scenario one, or the stop loss gets hit due to a sudden sell off. Let’s take a look at an example.

If you look at the formation circled, you can see the potential for a valid trade. The first candle finds support on the 9 and 26 EMA, and the four candlesticks following it create four higher highs – so far so good.

Now let’s go through the corrective candles one by one, so you can understand how a dynamic order works. The first candle with a very thin body forms a lower high which signals the start of the corrective candles, but it does not touch the EMAs so we must wait for the next candle.

The next candlestick also forms a lower high, and this time it closes below the 9 EMA. This is not a problem since we still have the 26 EMA below us, and if price closes above the 9 EMA in the following candlestick then that still counts as finding support on the 9 EMA.

Price does in fact close above the 9 EMA in the following candlestick. At this point we can enter this trade; we would place a buy order at the top of this candlestick, and a stop loss at the low of the previous candlestick where it met the 26 EMA.

Rule #7 — Stop Loss Rule 

Let’s say our buy order does not get hit and the following candlestick forms a lower high, and finds support at the 26 EMA. The setup remains valid and this is now the newest corrective candle, so we must cancel the previous buy order, and instead place a new buy order at the high of this candlestick instead. The stop loss would go below the low of the candle away from our entry point. Here’s how it would look.

The following candlestick does hit our buy order since it makes a higher high, so we have now officially entered the trade. That is how you set your dynamic buy and stop loss orders, and it’s pretty simple once you understand it. In this case it took us two candlesticks for our buy to get hit, but in certain cases it might take you up to six new buy orders before your order gets hit.

Remember however, that if the corrective candles close below the 9 or 26 EMA then you should probably cancel your buy order because the setup may no longer be valid. If the 9 EMA gets broken but one or two candlesticks later you find support on the 26 EMA then that’s fine, but if there are three or four candles in a row that closed below the 9 EMA, then you should close your trade. *This only applies if the candles are surfing the 9 EMA, if they are surfing the 26 EMA instead then you shouldn’t worry about where the candles are in relation to the 9 EMA.*

Rule #8 — Take Profit Rule

What about the take profit order, you might ask. In this case, since the flag formation meets every single rule we are a bit more confident, but we want to stay within our guidelines. In a regular scenario, we would take note of how far the initial stop loss is for the trade and set the take profit target to the same percentage, at the very least. This would maintain a risk/reward ratio of 1:1. Since we feel more confident about this trade based on our technical analysis, we might double the distance from the buy order to set our take profit order. This would increase our risk/reward ratio to 1:2.

Downtrend Surfing (Short Setup)

If you fully understood the rules for how to trade in an uptrend, then understanding the rules when trading in a downtrend should come to you easily. I won’t go too much into detail because I personally do not like to surf downtrends. If a currency pair is down trending, I try to avoid it altogether. However, I felt it necessary to include the rules for surfing a downtrend. 

Hopefully you have a good idea about how to use the trend surfing strategy on an uptrend. Let’s look at the rules for a downtrend. The rules are very similar to when trading an uptrend.

Downtrend Surfing Rules

  1. The 15-minute chart must be on a clear downtrend.
  2. The 1-hour chart must be on a clear downtrend.
  3. The ADX  indicator is above 25.
  4. The 15-minute candles must be surfing off the 9 or 26 EMA. If the candlesticks break above the 26 EMA, then the formation is no longer valid.
  5. Price must be forming an upside down flag formation. (There are three or more impulsive candles that each form a lower low than the previous candle, with at least the first candle finding resistance on the 9 or 26 EMA. These candles do not all have to be red. There are multiple corrective candles forming higher lows, until one of them finds resistance on the 9 or 26 EMA. If there is only one corrective candle that immediately finds resistance on the 9 or 26 EMA, that is also a valid setup. The correction may not go above the high of the first impulsive candle or above the 26 EMA. If the formation is surfing the 9 EMA and then starts surfing the 26 EMA instead, then the setup is no longer valid. The formation is complete once the corrective candles stop forming higher lows, and a lower low is formed.)
  6. A sell order must be placed below the low of the first corrective candle that finds resistance on the 9 or 26 EMA. (If the next candlestick does not form a lower low and hit the sell order, then the sell order must be moved to the low of this new candlestick instead. Repeat this process until the sell order is hit. If the setup no longer becomes valid for any other reason, then remove the sell stop.)
  7. Place your stop loss above the high of the candlestick you place your sell order below.
  8. Place the take profit as far from your sell order as your stop loss.

If you would like to learn more about cryptocurrency trading, blockchain technology, or automated income methods, visit our website for more information. We have plenty of free content as well as multiple educational courses available to advance your trading strategies and general knowledge of cryptocurrency. 

By viewing any material or using the information within this publication you understand that this is general education material and you can not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here. Trading cryptocurrency has potential rewards, but also potential risks. You must be aware of the risks and be willing to accept them in order to invest in the markets. Only trade with funds you can afford to lose. This publication is neither a solicitation nor an offer to buy/sell cryptocurrency or other financial assets. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in any material on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.

Written by Edward Gonzales © Crypto University 2021

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