The Tau System - Swing Trend Trading

The Tau trading system is a combination of swing trading and trend trading. Trend trading on its own is fine, but what do you do if there is no trend, or in the moment you are invested it stops advancing or reverses? Swing trading on its own is also fine, but it can be used to get on a longer running trend.

The Tau system combines both trading methods so that the outcome seamlessly switches from one to the other.

Consider three cases:

• The market meanders around and every now and then a better swing occurs. The better swing is a smooth swing. Swing traders and trend traders alike need smooth aka clear swings and trends.

• It starts to go up, but in a swingy way, which means prices come back and it is not clear whether an upmove will follow so that finally there is a trend forming.

• A trend smoothly moving up has finally established itself and self supporting forces are at work. The momentum effect. The better the trend the less swingy it is.

As above mentioned, in a good trend amplitudes of swings get relative to the trend size smaller. That means it is easier to get onto the trend and also to stay in it without getting stopped out. So, how exactly to get in and out?

The very simple idea is to use a swing trading system that yields on its own some profits and boost this with a simple rule:

If the position is somewhat profitable, disconnect it from the swing trading system, raise the stop loss to the entry price and give it more room to breathe with a wider stop. Advance this stop when prices increase further so that it becomes a trailing stop.

Generally there are three methods:

• Entry and exit with chart patterns and discretionary trading. This can work very well, but you need a trading mind and have your psychology under control.

• Using indicator and oscillator systems. The computer gives you a strong guidance. It is easier to follow clear signals than to interpret chart formations. Systems that adapt to a specific price history are interesting here.

• Have a complete trading automaton. In this case psychological problems are minimized, but it is also difficult to choose, understand, and finetune the trading algorithm if it is something like a neural net. Additionally there may be the problem to connect it to the trading API of a broker or exchange and to make it run securely.

All three methods have the same secret:

The right selection of possible trading candidates. At this point fundamentals and overall market mood come into play. For a swingy stock or coin to become a trendy one, it needs some motor that propels it up to new highs.

And there we are, the combined swing-trend trader needs to look for markets that may make a new all time high. This is the single best indicator for better chances of a longer running smooth trend. Such trends will enlarge trading profits with the swing trading and also increase the percentage of outliers that bring in real profits.

So, it is the selection that makes the above trading methods more than any finetuning of them really work.