To determine the direction of price movement or trend today, there are countless mathematical formulas, technical indicators and other auxiliary techniques. In the recent past, a simple trader did not have the technical ability to determine the trend using complex calculations. This article will discuss what a trend actually is and how to define it in "classical ways".
What is a trend?
trend is the tendency for the price of an asset to change in one direction. The price must either fall or rise, if the price movement goes in a lateral direction (and neither up nor down), then this movement is called flat. Back at the beginning of the last century, Charles Dow wrote in his works that an uptrend can be called a price movement, each local minimum and local maximum of which is higher than the previous one.
Uptrend
A downtrend is a situation in which the price movement forms each local minimum and maximum below the previous one.
downtrend
These highs and lows form support and resistance lines. Each time after the trend breaks these lines, the price goes to new extremes, provoking new purchases or sales, which confirms the presence of a trend. Of course, not every breakdown of a local maximum or minimum will end with a continuation of the price movement towards the breakdown. Can happen and, in such cases, only the strength of the momentum, trading volume and level testing can refute or confirm the "true" breakdown.
trend line is one of the elements of technical analysis, which is used to identify the trend in the value of financial instruments. The trend line is built through two (or more) points on the chart, it creates a semblance of resistance and support lines, only at a certain angle. Most of the rules that apply to support and resistance lines can be applied to trend lines in the same way.
Trendlines can be of two types: ascending and descending.
It is formed as a result of the connection of two or more lows and is inclined with the right end up. Rising trend lines act as support.
It is formed as a result of the connection of two or more maxima and is inclined with the right end down. Downtrend lines act as resistance.
What is needed to determine the trend?
In order to determine the trend in the "classic way" you need to open the daily chart of a trading instrument and determine on it, as well as local highs and lows, and then determine the prevailing trend, which will be a trend. Of course, the daily chart is of more interest to investors than to intraday traders, but everyone should pay attention to it without exception, as it allows you to understand what is happening in the paper in the long term. After studying the daily chart, you should move on to intraday charts, the most popular of which are "hourly", fifteen and five-minute timeframes. Of course, the popularity of this or that timeframe does not affect the trading system of an individual trader, who will determine the trend on the charts with the timeframe that is more convenient for him. For example:
Daily chart (RFMD)
The figure shows the daily price movement chart of RF Micro Devices. The chart shows that the stock is in a long-term uptrend. In June-July there was a stop of the upward movement, after which the paper continued to move along the trend. At the moment, the price has broken through the maximum around $12, confirming the presence of an uptrend.
Fifteen Minute Chart (RFMD)
On the fifteen-minute chart for the last 5 trading sessions, you can see how the price, after exiting a short flat, tends to new highs on fairly high volumes. Increased volume and breakouts of resistance levels indicate the strength of buyers, which means that in the near future we can expect a continuation of the uptrend. For an intraday trader, local trends that last from several minutes to one trading session are of the greatest interest, but despite this, intraday traders need to pay attention to global trends and, based on the situation on the daily charts, prioritize the upcoming trading session. For example, if there is a fall in the price of a traded instrument in the long term, then intraday short trading will be less risky. In other words, you need to be friends with the trend.
Confirmation of the "truth of the trend" according to Charles Dow
Each breakout of the high or low may turn out to be false and instead of the expected trend, the price will return and begin a sideways movement or reversal. To confirm the truth of the trend, Charles Dow developed an innovative approach, which is still used by the vast majority of traders today. The Dow pooled several railroad stocks to create the so-called "Railroad Index" and to create the "Industrial Index" he combined stocks of industrial stocks. By doing this, Charles Dow provided himself with an excellent analytical tool for researching market trends. Like-minded people and followers, using his knowledge and experience, later made what is today called the Dow Jones index. Charles Dow said that the trend should be confirmed by the industry and general stock index. For example, if the uptrend of the RFMD paper is confirmed by the bullish trend of the industry and the market, then the signal of the trading system to enter the long will be almost perfect.
Using a moving average to determine the trend
One of the easiest tools to confirm an existing trend is the simple moving average. For a better perception of the information of this indicator, a combination of two or three moving averages is usually used. The most commonly used are 10, 50 and 200-period.
For example:
green 13-period moving average blue 50-period moving average red 200-period moving average In our example, the slower moving average (200) was crossed upwards by the faster moving average (50), which confirms the appropriateness of the purchase.
Conclusion
Before entering a position, it is always necessary to assess the risks. The entry point can be just perfect, while the trend in the paper, the index and the market as a whole will support you, but without following the rules of money management, it will be very difficult to make money in the market. Remember that risk management is the foundation of your trading system.
Stay up to date with all important United Traders events - subscribe to our
- this is the direction of the movement of the price of an asset, which was formed within a certain time period. Often, the term “trend” is used as a synonym for this concept, which can be formulated as the most probable direction of price movement in the future, determined on the basis of its previous and current state. In both cases, the key link is the directionality, which is the most important aspect of predicting price movements and trading in general. Its purpose is to make a profit based on the change in the value of an asset in a predetermined direction.
One of the fundamental laws of technical analysis says that price movement is directed and subject to trends. Contrary to the opinion of many non-traders, the market is not as chaotic as it might seem. And that is precisely what the law cited above asserts. Due to the direction of price movement, it becomes possible to analyze, predict and make successful trading decisions. If the market were really that chaotic, there wouldn't be many successful traders able to consistently make profits over time.
Understanding and competent use of such a basic concept as a trend is the first condition for the formation of a holistic vision of the market. A huge number of indicators, trading strategies or chart patterns are all based on fundamental concepts, the knowledge of which is extremely important in order to fully use the potential of the above-mentioned tools.
By learning the features of a trend, a trader can trade successfully even without the use of complex indicators or intricate systems, which once again proves the importance of basic principles in comparison with sometimes too cumbersome new methods.
Trend types.
The market is unstable, it can be both extremely dynamic and very calm, but despite this, three most common conditions can be distinguished, each of which has its own characteristics and characteristics.
1. Lateral movement- this is a market condition in which the price of an asset changes within a small corridor, not rising above a certain maximum and not falling below any minimum value. It must be understood that the most important part of any trend is the time interval in which the analysis is performed. For example, on the four-hour charts, there will be a sideways, calm movement, but as soon as you go down a couple of timeframes, the situation changes dramatically, and the market acquires dynamic and wide movements.
Such a state is characteristic of periods when there are a small number of traders on the market, as well as when the demand for an asset is low, which causes a small price change dynamics. For this in English language the word "flat" is used, which means "smooth, flat". The period when the price moves in such a narrow range is the most favorable for scalping or quiet trading.
2. Upward movement- this is the dynamics of price changes, in which the value of each subsequent local minimum turns out to be greater than the previous one, as a result of which there is a distinct progressive increase in the value of the asset. Visually, all lows (or most of them) can most often be placed on a straight sloping line. This trend is also called "bullish", comparing the rising price to a bull that attacks with its horns with a strong bottom-up movement.
A rising price symbolizes the favorable condition of the asset, strong demand for it, as well as a more optimistic view of market participants. Uptrends are typical for strong or strengthening currencies and stocks, which are supported by positive news, reports and other factors. When using a trend-following strategy, buy trades should be opened in this period, as the price is likely to rise in the future.
3. Downward movement- the dynamics of price changes, which is characterized by a sequence of local minima, each of which is higher than the previous one. As with an uptrend, often these local values can be placed on one sloping line. Contrary to the upward, "bullish" trend, this species is called "bearish" because of the analogy with the attacking bear, which stands on its hind legs and with all its weight strikes with its front paws from top to bottom.
The fall in the value of an asset is the result of the manifestation of both individual economic, political or other factors, and the result of their total impact. At such a time, it is worth following the market and opening deals for sale, since the probability of success in choosing this direction will be much higher.
trend characteristics.
The trend has several important properties, each of which can significantly affect its assessment as a whole. Determining the general direction of movement can be quite difficult, but it is much more difficult to create a more detailed picture, on the basis of which one could open a profitable trade. The latter is a companion of experience, thanks to which a better sense of the situation comes, but in general it is enough to consider the 3 most important properties that form the basis of the trend:
1. Direction is the first and most important property. It is extremely important for beginners to understand the significance of the scale in determining the trend, since the situation can be radically different at different time intervals. Because of this, a correction (the stage of a trend when the price stops moving in its original direction and returns a little back) can be perceived as an independent trend, which leads to wrong decisions. How to correctly determine the trend will be discussed below.
2. Strength - the more points there are through which a trend line can be drawn, the stronger and more important the current trend is. It is also important to pay attention to the angle of the trend line: the steeper the degree of inclination relative to the horizontal, the less influential the movement. Those. very steep movements do not have such strength as trends that develop relatively smoothly and for a long time. The ideal angle for upward and downward movement can be called 45 degrees.
3. Duration The longer a trend exists, the stronger it is. This property is relevant for higher timeframes, since the price is extremely mobile and dynamic within a day. But at the same time, there are tactics that allow you to very effectively use the global trend on a local scale.
Trend definition.
First of all, you need to remember one simple truth - there is nothing perfect in this world, and the market cannot be called that either. All definitions, schemes, connections are extremely conditional. The success of trading does not depend on how well you memorize any definition, but on how deeply you understand the essence of the phenomenon in question. Your success depends on the ability to improvise, look at things outside the box and understand their imperfections.
Therefore, not the most ideal market situation was chosen as an example for study. At the end of this paragraph, you will see for yourself that a profitable trade does not always have to be perfect. So, let's consider the main stages of determining the trend:
1. Local points– first of all, it is necessary to determine local lows and highs, which are visually available within a small time interval relative to the timeframe. If you have an M30 chart open, then you do not need to review the entire previous month to determine the trend, choose a commensurate period. For beginners, it is still better to use the special graphical tools of the trading terminal (in this example, "Meta Trader"), and over time, you will easily be able to carry out all the procedures without them.
– now it is necessary to determine the dynamics by connecting as many lows and highs as possible with separate straight lines. It is interesting that with a pronounced trend, both of them will indicate the same direction. With experience this stage simplifies to connecting only one of the groups (highs or lows) depending on the trend. Also study the materials on the support and resistance lines, since these are the ones you have now built. As a result, you have a trend line that connects local price zones and indicates the vector of further movement.
Surely many of you were surprised how ugly the highs are connected. But, as mentioned above, the market is not perfect, which is why the construction of a trend line has its own characteristics.
The line doesn't have to perfectly connect all the dots. Moreover, the generally accepted definition of "trend line" is not entirely correct. It is more appropriate to speak of a trend zone or area, which is formed at a distance of several points from the line in both directions. The price will never bounce off the line you have drawn up to a point, and this is extremely important to understand. It may not reach several points in the process of correction, make a false breakout of the constructed level, or not approach it at all, rushing sharply in the right direction without any rollbacks.
One of the subtleties of plotting a trend line is knowing the exceptions. Such an exception is the concept of a false breakout, which can be described as an unsuccessful (but sometimes extremely convincing) attempt by the price to break through the existing level and reverse the direction of its movement. Without going into details, in the example above, this is exactly the case: the price broke through the line with a jerk upwards and closed above it, but the next candlestick returned the market with an even greater jerk in the right direction and closed already significantly below the line, while maintaining its value .
The situation when the price does not reach the line also has some peculiarities. Many traders consider it correct when building a trend to connect only the bodies of candles (the gap between the open and close), and not the shadows (high and low values). This is true for the basic (extreme) points, but it is permissible to “capture” some intermediate (internal) stages along the upper parts of the candles. In addition, this can be explained by the lack of strength of traders trading against the current trend, which further confirms its importance.
Looking a little further in the direction of the trend, you can see a very pleasant picture. By building such an imperfect trend line and opening a trade on the last touch, one could potentially get a very good income (from the maximum calculation of the distance traveled), since the price obediently went in the right direction without even trying to test or break the trend line.
Application.
The trend can be used as an independent phenomenon, without relying on additional tools, or you can try to unlock the hidden potential using a variety of techniques and methods.
The most popular is the use of the trend as a fundamental part of graphical analysis. You can use simpler (in terms of logic) methods, such as trading from support and resistance levels, or delve into the study of a variety of chart patterns and patterns. The use of these techniques requires certain skills, such as: photographic memory, the ability to identify organized price patterns from many individual movements, perseverance. Skillful use of their abilities, as well as the advantages of graphical analysis, can lead to amazing success.
The second option for using the trend can be called trading with the help of technical indicators. There is even an item in the Meta Trader terminal where some of the instruments of this group are collected. To insert them, you need to follow the path "Insert - Indicators - Trend". But, despite the seeming simplicity, this method requires no less effort and skills.
You can often hear about various combinations of elements of graphical analysis with an indicator one. And it has the right to life. As already mentioned, one of the most important success factors is the ability to improvise and look at things outside the box. Consider even in in general terms all methods of trading using the trend are not possible within the framework of this material, but now you have the basics, and which direction to delve into is up to you.
Conclusion.
The eternal dream of any trader is to know what will happen to the market in the future. Complex mathematical calculations, oscillators and indicators, trading systems that transform Blank sheet price chart in the canvas of some crazy artist... All this for the sole purpose of looking into the future and making the right choice now.
Graphical analysis with its rich history has not receded into the background, has not lost its relevance in the age of the total prevalence of computer technology and mathematical sophistication. Its accessibility and simplicity prompt some to say that all this has not worked for a long time, that this method of analysis has outlived its usefulness and must give way to more modern, fresh methods. But classical graphical analysis still regularly brings profit to traders all over the world, while its opponents invent another formula, analyze data arrays and try to create something ideal by trial and error.
Understanding the movements of the trend, independently building relationships, analyzing and making decisions based on your thoughts, and not the result of mathematical calculations - all this has a soul, no matter how stupid or pretentious it sounds. Maybe all this is really a thing of the past, and very soon more advanced trading methods will be found. Maybe. But what is really worth doing is to start your journey by working more closely with the trend, while gaining the precious experience of watching all the follies of the market.
trend(from English trend - trend) is a long-term trend in the studied time series. Trends can be described by various equations - linear, logarithmic, exponential, and so on. The actual type of trend is set based on the selection of its functional model statistical methods or by smoothing the original time series.
The trend in the economy- this is the direction of the predominant movement of indicators. It is usually considered within the framework of technical analysis, where the direction of price movement or index values is implied. Charles Dow noted that in an uptrend, the next peak on the chart should be higher than the previous ones, in a downtrend, subsequent declines in the chart should be lower than the previous ones.
|
There are the following types:
There are ascending (bullish), descending (bearish) and side (flat) trends. A trend line is often drawn on the chart, which, on an uptrend, connects two or more price troughs (the line is below the chart, visually supporting it and pushing it up), and on a downtrend, it connects two or more price peaks (the line is above the chart, visually limiting it). and pressing down). Trend lines are support lines (for an uptrend) and resistance lines (for a downtrend). The concepts of "bullish" and "bearish" are used by analogy with the concepts. Trend types
Trend estimation methodsParametricThe time series is considered as a smooth function of t: Xt = f(t),t = 1…n;. In this case, one or more admissible types of functions f(t) are first identified; then various methods(for example, OLS) evaluate the parameters of these functions, after which, based on the verification of the adequacy criteria, the final trend model is selected. Of great importance for practical applications are linearizable trends, that is, trends reduced to a linear form with respect to parameters using certain algebraic transformations. Nonparametricit different methods smoothing the original time series - moving averages(simple, weighted), exponential smoothing. These methods are used for both trend assessment and forecasting. They are useful when it is not possible to find a suitable function for trend estimation. trend linesTrendlines are widely used in technical analysis. At the moment, there are many methods for constructing and interpreting them. trend line is a straight line connecting at least two price peaks on a currency (asset) exchange rate chart. It should also be noted that within the development of the main trend going along one line, many secondary trends can form along additional trend lines. Trendlines can be broken by value as well as support and resistance levels. This shows the end of the current trend. There are three types of trend lines: 1.Rising- is built on the lows of the uptrend waves and acts as a support line. The figure shows an ascending trend line and the bottom points on which it was built. 2.descending- is built on the tops of the bearish trend waves and acts as a resistance line.
The figure shows a descending trend line and the top points on which it was built. 3.Horizontal- connects highs or lows of equal value, which often alternately change one by one. Such a line is drawn during horizontal movement - flat. It acts simultaneously as horizontal support and resistance lines.
The figure shows the horizontal trend lines and the high/low points they were drawn from. Trendlines are classified in order of importance using four indicators:
The trend line is relevant until the price breaks it in the direction opposite to the current trend. Showing thereby the end of the current trend. |
In our time, there are many foreign concepts in the Russian language, the meaning of which is still a mystery to many. Now it is not uncommon to hear the phrase “fashion trends” on TV screens in various programs about style, cinema or music. What is the essence of this concept and how should it be understood?
Meaning and general meaning
This newfangled term is translated as "flow" or "trend", meaning a short-term direction in any area. For example, in nanotechnology, this is a modern science course. But most often this word can be found in the areas of culture and art.
What is a fashion trend? In this case, the concept indicates current things and stylish trends in a certain period. The one who follows current trends will always look fashionable and stylish. If they say about a person that he is in a trend, then this means one thing: with him you can discuss all the latest fashion, the latest designer collections, as well as talk about the world of cinema and music.
Examples of using
Outfits that are relevant for one period of time, most likely, will no longer be a trend for the next seasons. Fashion trends generally refer only to a certain time period, usually not very long. It can be one or two seasons of one year. For example, spring-summer or autumn-winter. In this case, you need to pay attention to the things that are presented in the collections of a particular period. But it must be remembered that too extravagant models in the next season may no longer be relevant. Do not confuse the concepts of "fashion" and "trend". Clothes can represent an entire era, for example, the style of the 60s or 90s. In this case, it is not considered a trend, as it is not fleeting. But if things are relevant only this season, then, undoubtedly, this is a trend.
Attributes of fashion trends
The first sign that things are considered fashionable is mass. For designers, of course, it is important to create clothes or some other product that will be in demand among a large number of people. Therefore, if you ask leading fashion designers about what a trend is, they are guaranteed to answer: these are easily recognizable things among a wide range of buyers and are in high demand.
The second and one of the main attributes of fashion trends is exclusivity. A collection of clothes, of course, cannot be created by anyone famous person. Basically, the trend of the year is developed by a group of people with worldwide recognition. After that, manufacturers of cheaper goods produce inexpensive similar things that can satisfy the needs of all segments of society.
The third sign of fashion trends is temporality. Answering the question about what a trend is, we can confidently say: these are things for a couple of seasons. They are updated periodically, so designers present their collections to the public at least once every six months. Accordingly, in order to keep up with the modern style, it is necessary to constantly monitor the latest and be at the center of current events in the fashion world.
Components of a trend
The latest trends tend to have an initial stage of popularity, a peak in demand, and an end. World fashion designers create their collections and demonstrate shows, focusing on two seasons ahead. The main fashion trends are necessarily applied in clothes, shoes and accessories. This applies to both male and female items. So what is a trend anyway? The term can be called a popular color scheme in a certain period of time, as well as a fashionable ornament or material from which things are made in a particular season, a clothing model and its length.
What do fashion trends look like this year?
Our life does not stand still, so the wardrobe must be constantly updated, in line with all the new trends in the fashion industry. This should be done by those people who want to always stay on top and, as they say, be in trend. The current colors this year are soft and natural tones that have a fresh and pleasant look. The shades of things are as close to natural as possible, respectively, the acid palette is gradually disappearing from all the world's catwalks.
Fashionable clothes this year have an incredibly elegant look and are presented in the form of a free cut, which makes them almost universal and able to suit every person. It looks great on any figure, and the correct use of accessories can emphasize all its advantages.
What will they wear in the spring?
This season of this year, fresh and bright colors will be in fashion: an emerald palette and turquoise shades. Designer collections are presented in the form of off-the-shoulder dresses and blouses combined with joggers, striped clothes, which can be wide, narrow, asymmetrical cut. Especially fashionable will be short jackets with voluminous sleeves. Spring trends this year have several fashion trends. It can be clothes presented in the style of the 70s, a variety of floral prints and additional accessories in a small amount. If all these trends are taken into account in your wardrobe, then, undoubtedly, you will get a very stylish spring look.
Summer fashion trends
In the hottest season of the year, sports-style dresses will be relevant, which, of course, will appeal to fans of an active lifestyle. Also, the hit of this period will be clothes with pleats, lace, embroidery or a variety of romantic outfits. The real summer trend is presented in the form of tiered and cascading skirts. Those who prefer a slightly simpler silhouette can choose a model in the shape of a tulip, pencil or flare.
No fashionista's wardrobe is complete without a beautiful pair of shoes. This summer, heels, lacing and wedges will be relevant. And, of course, high-heeled sandals do not lose their popularity among the representatives of the beautiful half of humanity. Do not forget about bags, as a great addition to any look. In the warm season, clutches will be in fashion, as well as models that are bag-shaped or made of transparent materials.
Whether it is worth following fashion trends and always staying in trend, everyone decides for himself. But you should always remember: the current fashion is very changeable. What is in demand during this period will go into the background next season.
Therefore, changing your wardrobe with such frequency is very difficult and almost impossible. People often forget that fashion is a real art that many people use to express themselves. You can skillfully combine new outfits from those things that are already available, and always be in trend.
Hello dear friends!
In today's article, I want to dwell on one of the most important concepts of technical analysis and analyze it in as much detail as possible. Surely you already understood that we are talking about a trend. So let's figure it out What is a trend.
The whole theory of technical analysis by Charles Henry Dow is based on two concepts: trend and support/resistance levels. And it is the definition of the current trend that is the main task of traders. Therefore, I recommend that you pay very close attention to this topic.
Also, if you read this article to the end, of course, you will find out: what are the types of trends, let's talk about the classification of trends, based on the theory of Charles Henry Dowy, learn how to identify and determine trends (both with and without indicators), how to make money on trend, and much more.
So let's get started!
Many of you have probably heard such phrases: “The trend is your friend”, “Follow the trend”, “Do not trade against the trend” and others. Of course, all these quotes are trading axioms and truisms, but not every novice (and not only) trader can give a correct definition of a trend, let alone identify it on a chart.
Of course, there are definitions of the trend in fashion, and in mathematics, and economics, and in many other areas and areas. But we are only interested in the concept of a trend from a financial point of view.
trend(translated from English. trend) is a unidirectional price movement that is valid for a certain time.
Also notice the last phrase I gave in the definition ("within a certain time"). It is very important! Remember this. And why does it have great importance, I'll cover it a little further down.
We figured out the definition and now let's move on to the classification of trends.
Types of trend
The theory of technical analysis says that a trend can be classified according to two criteria:
- By direction
- By time of existence
Let's look at each of these types in more detail.
Classification of trends by direction
Upward (“bullish”) trend(from English. up trend). In such a trend, each subsequent peak (high) and trough (low) is higher than the previous ones. Schematically, it looks like this:
An example of a bullish trend on the chart:
Downward (“bearish”) trend(c eng. down-trend) is a sequence of decreasing peaks (highs) and troughs (lows).
it circuit diagram, and this is what a bearish trend looks like on the price chart:
It is logical to assume that in a bullish trend it is more profitable to buy in the direction of the main trend, and in a bearish trend it is more profitable to sell.
There is another market condition where the price moves without any definite direction and is in narrower limits, forming a trading range. This state is called flat (flat). There is also another concept that is often called lateral movement. I'm sure you've heard it more than once consolidation.
Note that with this movement, the peaks and troughs are approximately at the same level. And here is what the flat looks like on the chart:
Perhaps you have met (or will still meet) the opinion that a flat is the absence of a trend. So, this opinion is erroneous. There is always a trend in the market. The only question is whether a particular trader can determine it.
Market trends can also be classified by time of existence. Most often, there are three types:
- Long-term (primary or main) trend- lasts from one to two years. This trend is important for large market players and investors.
- Medium-term (secondary or intermediate) trend– lasts from 1 to 6 months. It is corrective and goes against the main trend.
- Short term trend- lasts from one week to a month, consists of small fluctuations (movements), can go against the medium-term trend, is not always amenable to technical analysis and depends on many (sometimes random) events.
Here is how it will look on the chart:
I'm sure you're wondering, where do these time frames come from? Why exactly a month, two or a year? Remember at the very beginning of the article, I focused on a specific phrase. So, from the definition of the trend that I gave, two consequences follow:
1. The duration of the price movement change depends on the time frame (time interval). That is, before determining the trend on the chart, it is necessary to determine the working time frame. For example, if you are analyzing an hourly chart, then here the long-term trend will last 1-2 weeks, the medium-term trend will last from a couple of days to a week, and the short-term trend will last from several hours to one day.
This is very important because, for example, during intraday trading, you can see a bullish trend and trade in a buy, but on an older timeframe, this movement can only be a correction to the main bearish trend.
I will try to illustrate this with an example:
This is the British pound. On the first chart, we see a pronounced bearish trend. And of course, for successful trading, we need to sell in the direction of this trend. But, as soon as we move to the older time interval (second chart), it immediately becomes clear that this movement is only a correction in relation to the main trend.
2. The direction of the price movement change depends on the reference point from which the technical analysis begins. To explain this thesis, I will have to resort to a chart and show it in detail using some currency pair as an example.
I took the EURCAD currency pair, daily chart. If I take the April 2013 lows (point “1”) as the starting point for the analysis, then I will consider the current price movement as the end of a bearish correction and the beginning of a new bullish movement in the direction of the main trend. If I start to analyze the chart from the current highs (from August 23 (t. "2")), then I will consider the current upward price movement as a corrective previous bearish movement.
Therefore, henceforth, if now you are asked the question: “What is the current trend in the market?” Know that this is a stupid question. Since, in order to answer this question, you need to know on what time frame and from what date this financial instrument is analyzed.
Trend phases (lifetime)
Next important point, which I simply cannot ignore and leave unnoticed. Remember, no long-term trend ever just (suddenly, unexpectedly) starts and ends. Most trends have three phases and develop according to a certain scenario. Here they are:
- Phase 1 - Accumulation Phase (Generation Phase). During this phase, large players and investors begin to buy (or sell) financial assets. On the chart, this is displayed as a flat with false breakouts in both directions. This is due to the “injection” of money and the increase in volumes and liquidity. After a compromise between buyers and sellers is found, the trading range is broken and the second phase begins.
- Phase 2 - distribution phase (development phase). This is a period of a directed up (or down) trend. At this time, more and more participants join the movement. At the same time, long impulsive movements and short corrective ones appear on the chart. This is due to the fact that some players fix their positions, while others open positions in the opposite direction. But this volume is not enough to withstand the crowd, and the trend continues its movement.
- Phase 3 - completion phase. During this phase, the price reaches its maximum values. Large players begin to fix open positions and withdraw their money. On the chart at this time, we can see quite deep corrective movements or the appearance of various chart patterns such as "head and shoulders", "multiple top" or "multiple bottom".
Below are two figures, the first shows the phases schematically:
And on the second - the same phases, only on a real chart:
For example, the chart of the Australian dollar was chosen by me not by chance.
Please note that during the development of the trend, there may be several phases of accumulation. They may be accompanied by false breakouts in both directions (I wrote about this above). And also look at how, after the end of the bullish trend, it does not reverse, but goes into a wide trading range. It is very important! In various sources, one can often find judgments that after the completion of the current main trend, a new one should begin, but in the opposite direction. This is fundamentally a misconception.
How to determine the trend in the market?
Theory is good, but I'm sure you would like to know how to correctly determine the trend? There are two methods to determine if there is a trend in the market:
- With the help of technical indicators.
- indicatorless method.
There are an incredible number of indicators designed specifically to help the trader with this issue. It will not be possible to list them all, as more and more new inventions appear regularly.
Among the standard indicators that can be found in absolutely any trading terminal, I would highlight the following:
Within the framework of this article, I will not talk in detail about the methods of working with them, since I have already published separate articles on these technical tools. If you do not know anything about these indicators, then, after reading this article, be sure to follow the links that I gave above.
Now on the Internet you can find hundreds of different indicators. But trust my experience, don't waste your time on them. All of them work on the same principles, since they are most often built on the basis of standard ones, and there will be as much sense from them as from standard ones (or even less). Nothing new and revolutionary has been invented in recent decades.
I would like to dwell on indicatorless methods in more detail. This trend detection method has been around since the advent of technical analysis. And I'm sure it will work for a very, very long time. It is very simple, and somewhere, maybe even primitive. It consists in the following: to determine the presence of a trend in the market, we will analyze peaks and troughs. Highs and lows rise in an uptrend and fall in a downtrend. It is on this property that this method will be built. How it works, I'll show you with examples.
This is a weekly chart of the USDCAD currency pair. Before starting technical analysis, you need to do two things: decide on a time frame (which I did) and choose a starting point (I took the low of September 09).
At point "1" we cannot say that a new bullish trend has begun. We regard this low as the end of the bearish momentum and the beginning of the correction. The maximum that appeared at point "2" signals that the correction is over and the bearish trend continues. The most interesting begins to happen at point "3". The minimum that appears there is located above the previous one. This is the first signal that a new trend has begun. And at point "4" a new maximum appears, located above the previous one. Now the chart has both highs and lows that are higher than the previous ones, which fully corresponds to the definition of a trend.
Of course, this method has one small drawback. It takes experience and skill to use it correctly. But, as you know, experience comes with time. 🙂
I also talked about how to trade with the trend (or against the trend) in my previous articles on trend lines , trade channels and support (resistance) levels. Be sure to check them out. Without the information that they contain, knowledge will be incomplete.
Well, dear friends. Here we are at the end of the article. I want to thank you for your attention and patience. I would like to reiterate the importance of understanding the trend phenomenon in technical analysis. But now you know for sure what is a trend and you can accurately determine it in any conditions.
