One of the perennial challenges of trading is finding rules that will define the conditions in which a trade setup will perform best. A common example is the trend filter, which defines an uptrending or downtrending market and allows only signals in the direction of the trend to be executed.

Typically, the trend would be defined by price being above or below a moving average, or above or below the price n bars ago. What inevitably happens, though — especially in the case of moving averages — is the trend filter can’t keep up with price action and many good trade signals are ignored.

This strategy uses a slightly different approach.