6 Tips On How To Identify The Trend On Charts
Note: Christmas Trading Course Special: Until December 31st, Save 45% Off Nial Fuller's Professional Trading Course, Daily Trade Setups Newsletter, Live Trading Forum & Email Coaching - Click Here.
Over
my 15+ years experience trading, I have discovered that when it comes
to identifying the trend of a market, there is no magical tool, no
indicator and no set of rules that ‘always’ works. As traders, despite
our best efforts to analyze the charts and carefully determine a bias on
the charts and trade ‘in line’ with the trend of the market, ultimately
the direction of the market can quickly change at any time. If things
don’t go to plan, we should use the benefit of hindsight analysis to
dissect the chart and figure out what we initially missed and what went
wrong. Just remember that this isn’t an exact science, and sometimes,
despite our best efforts to make sense of the charts, the market will
just move in the opposite direction. Don’t beat yourself up.
To be clear, trend analysis is only one part of the overall trading strategy I employ to enter and exit trades. It is never a good idea to enter a trade based on one factor alone, which is why I look for as much evidence as possible to confirm a trade. In my own trading plan, I employ a concept known as T L S confluence, an analysis technique which brings together; trend analysis, level analysis, and signal analysis.
When reading today’s lesson, keep in mind, I am not talking about ‘trading the trend’ here, I am simply providing a set of filters and observations to identify the most obvious direction the market is likely to head. Also, the market may, in fact, look like it’s trending in one direction, when in fact it’s actually trending in the other direction. This is because many markets experience short-term retracements, which tend to deceive traders. For this reason, always zoom out and look at the bigger picture on the charts and then zoom in and drill down from there.
We will start with the simpler techniques and work our way to the more advanced techniques.
If you ask different traders, you will hear different versions of what the current trend of a market is. Some will give you the short-term trend, some the long-term and some the mid-term. However, the most important trend to identify is the most obvious current dominant daily chart trend. We can identify that using both short-term and long-term analysis, which begins by simply observing the charts.
I like to ask myself, what is the chart looking like over the last year, 6 months and 3 months? That shows me the long-term, mid-term and short-term views, respectively. Doing this gives me a very clear idea of the general/dominant chart direction moving from left to right. If all else fails, zoom out on a daily or weekly chart and take a step back and just ask yourself, “Is this chart falling or rising?”. Don’t over complicate it!
By taking a look at the general direction of the price action in a market over the last 3 month to 1 year time period, we can easily see whether it’s generally trending up, down or even sideways.
Notice in the chart above, the 50 and 200 period EMA’s give us a good quick-view of the dominant daily chart trend direction.
If a market is trending lower, we want to pay close attention to the recent swing highs, and in an uptrend we will focus on the recent swing highs. We do this because it not only shows us the overall trend, but it also shows us via the price action if the trend is still intact or not.
For instance, if you have a series of Higher Highs and Higher Lows as in an uptrend, when you see price break down past the previous swing low, it’s a strong indication that the uptrend might be ending. Conversely, in a downtrend we see Lower Highs and Lower Lows, and when price breaks above the previous lower high, it’s a strong indication that the downtrend might be ending.
Note, in the above chart, the swing highs are circled in the downtrend and the swing lows in the uptrend. Notice how when price broke above the last swing high in the downtrend, it marked the end of the downtrend and an uptrend began.
In the chart above, we can see that all retracements higher to both horizontal resistance levels and the 21 day EMA were met with selling pressure as the dominant downtrend remained intact.
In the chart above, notice how the bullish pin bar at support really kicked off the uptrend which was again ‘confirmed’ by the failure of the bearish pin bars.
Finding the market bias or trend is tricky, especially for beginning traders, and most traders will find this to be a sticking point in their trading development. It’s OK to understand various entry triggers and setups, but if you’re trading against the dominant market bias, your probabilities of making money decrease dramatically. There is always a bias, and as beginner traders especially, you would be well served to stick with it.
In my professional trading courses, I expand in greater detail on how we identify and trade various forms of trends using price action signals as confirmation.
I WOULD LOVE TO HEAR YOUR THOUGHTS, PLEASE LEAVE A COMMENT BELOW :)
Any questions or feedback? Contact me here.
To be clear, trend analysis is only one part of the overall trading strategy I employ to enter and exit trades. It is never a good idea to enter a trade based on one factor alone, which is why I look for as much evidence as possible to confirm a trade. In my own trading plan, I employ a concept known as T L S confluence, an analysis technique which brings together; trend analysis, level analysis, and signal analysis.
When reading today’s lesson, keep in mind, I am not talking about ‘trading the trend’ here, I am simply providing a set of filters and observations to identify the most obvious direction the market is likely to head. Also, the market may, in fact, look like it’s trending in one direction, when in fact it’s actually trending in the other direction. This is because many markets experience short-term retracements, which tend to deceive traders. For this reason, always zoom out and look at the bigger picture on the charts and then zoom in and drill down from there.
We will start with the simpler techniques and work our way to the more advanced techniques.
1. Visual observation is key.
The first thing to understand about trend identification is that it is not a perfect science. I try to keep it as simple as possible and I start off by just visually observing a bare price action chart, with no indicators.If you ask different traders, you will hear different versions of what the current trend of a market is. Some will give you the short-term trend, some the long-term and some the mid-term. However, the most important trend to identify is the most obvious current dominant daily chart trend. We can identify that using both short-term and long-term analysis, which begins by simply observing the charts.
I like to ask myself, what is the chart looking like over the last year, 6 months and 3 months? That shows me the long-term, mid-term and short-term views, respectively. Doing this gives me a very clear idea of the general/dominant chart direction moving from left to right. If all else fails, zoom out on a daily or weekly chart and take a step back and just ask yourself, “Is this chart falling or rising?”. Don’t over complicate it!
By taking a look at the general direction of the price action in a market over the last 3 month to 1 year time period, we can easily see whether it’s generally trending up, down or even sideways.
2. Moving averages help, but they are far from perfect.
Put a 200 and 50 day EMA (exponential moving average) on your chart and check out the long-term slope of these ema’s. This is a good quick way to identify the overall dominant trend of a market. You should look at how prices are reacting near the moving averages (value zone), if the price is respecting those EMA levels and repelling/bouncing away from them on several occasions, you have good evidence the market is trending (a concept I call a ‘perfect trend’ and expand on in more more detail in my price action trading courses). The chart below is a great example for theory purposes, just don’t expect to see this every day. (Note: you can drill down further for short-term analysis, using the 8 and 21 day EMA)Notice in the chart above, the 50 and 200 period EMA’s give us a good quick-view of the dominant daily chart trend direction.
3. Draw in the most obvious swing highs and lows.
As markets trend, they leave behind swing points on a chart. By paying attention to these swing points we can quickly see which way a market is trending. This method is also going to give you an earlier-warning of a trend change than the EMA method above, because when you are looking at the raw price action of a trend, you can see the trend change quicker.If a market is trending lower, we want to pay close attention to the recent swing highs, and in an uptrend we will focus on the recent swing highs. We do this because it not only shows us the overall trend, but it also shows us via the price action if the trend is still intact or not.
For instance, if you have a series of Higher Highs and Higher Lows as in an uptrend, when you see price break down past the previous swing low, it’s a strong indication that the uptrend might be ending. Conversely, in a downtrend we see Lower Highs and Lower Lows, and when price breaks above the previous lower high, it’s a strong indication that the downtrend might be ending.
Note, in the above chart, the swing highs are circled in the downtrend and the swing lows in the uptrend. Notice how when price broke above the last swing high in the downtrend, it marked the end of the downtrend and an uptrend began.
4. Is the market appearing to ‘bounce from value’?
Check the behavior of the price action after retracements and check it as it approaches the long-term moving averages such as 21 day ema or a key static resistance level. Does the price action repel down as in a downtrend or bounce up as in uptrend? This kind of price behavior is a good clue to confirm the underlying bias / trend of the market.In the chart above, we can see that all retracements higher to both horizontal resistance levels and the 21 day EMA were met with selling pressure as the dominant downtrend remained intact.
5. Are there price action signals forming?
If you see price action signals that are producing substantial movement in-line with the trend, this is another confirming factor for your directional bias on a market. Also, remember that repetitive failed price action signals suggest the market is going the other way (and possibly changing trend).In the chart above, notice how the bullish pin bar at support really kicked off the uptrend which was again ‘confirmed’ by the failure of the bearish pin bars.
6. What to do once you’ve identified the trend.
Once you are confident you have identified the trend / directional bias of a market, you then look for a signal or area / level of the chart to enter. We call that confluence and it’ a concept that would require another lesson to explain, check out a lesson on trading with confluence here.Finding the market bias or trend is tricky, especially for beginning traders, and most traders will find this to be a sticking point in their trading development. It’s OK to understand various entry triggers and setups, but if you’re trading against the dominant market bias, your probabilities of making money decrease dramatically. There is always a bias, and as beginner traders especially, you would be well served to stick with it.
In my professional trading courses, I expand in greater detail on how we identify and trade various forms of trends using price action signals as confirmation.
I WOULD LOVE TO HEAR YOUR THOUGHTS, PLEASE LEAVE A COMMENT BELOW :)
Any questions or feedback? Contact me here.
Note: Christmas Trading Course Special: Until December 31st, Save 45% Off Nial Fuller's Professional Trading Course, Daily Trade Setups Newsletter, Live Trading Forum & Email Coaching - Click Here.
Hello everyone, Are you into trading or just wish to give it a try, please becareful on the platform you choose to invest on and the manager you choose to manage your account because that’s where failure starts from be wise. After reading so much comment i had to give trading tips a try, I have to come to the conclusion that binary options pays massively but the masses has refused to show us the right way to earn That’s why I have to give trading tips the accolades because they have been so helpful to traders . For a free masterclass strategy kindly contact (paytondyian699@gmail.com) for a free masterclass strategy. He'll give you a free tutors on how you can earn and recover your losses in trading for free..or Whatsapp +1 562 384 7738
ReplyDeleteThanks for a very interesting blog. What else may I get that kind of info written in such a perfect approach? I’ve a undertaking that I am simply now operating on, and I have been at the look out for such info. Best Forex Signal Service
ReplyDeleteBest work you have done, this online website is cool with great facts and looks. I have stopped at this blog after viewing the excellent content. I will be back for more qualitative work. Best Binary Options Broker
ReplyDeleteIt is an excellent blog, I have ever seen. I found all the material on this blog utmost unique and well written. And, I have decided to visit it again and again. Best Forex Education
ReplyDeleteHi there! Nice material, do keep me posted when you post something like this again! I will visit this blog leaps and bounds for more quality posts like it. Thanks... mt4 binary options brokers list
ReplyDeleteThis is my first visit to your web journal! We are a group of volunteers and new activities in the same specialty. Website gave us helpful data to work. What is the best binary options broker for USA Trader
ReplyDeleteI have read all the comments and suggestions posted by the visitors for this article are very fine,We will wait for your next article so only.Thanks! Pocket Opiton Strategy
ReplyDeleteThis article gives the light in which we can observe the reality. This is very nice one and gives indepth information. Thanks for this nice article. Best Tools for Binary Options Trading
ReplyDeletePositive site, where did u come up with the information on this posting?I have read a few of the articles on your website now, and I really like your style. Thanks a million and please keep up the effective work. Forex Trading Made easy
ReplyDeleteI think that thanks for the valuabe information and insights you have so provided here. Best Bonus for Binary Options Trading
ReplyDeleteI was searching for indicators for swing trading. Thanks, admin, for sharing such wonderful content on this topic. Now I have got everything I need about it. Here’s another informative content Indicators For Swing Trading , you may find here more information.
ReplyDeleteIts as if you had a great grasp on the subject matter, but you forgot to include your readers. Perhaps you should think about this from more than one angle. Ic Markets Review
ReplyDeleteYou there, this is really good post here. Thanks for taking the time to post such valuable information. Quality content is what always gets the visitors coming. Okex invite code
ReplyDelete