How do you identify trend?

tomorton

Legendary member
8,400 1,338
You should pick the most suitable methods for your strategy, so that they are most sensitive to the signals that your strategy needs.

So, do you want to find trends because -
a) you want to follow them?
b) you want to be ready for a reversal?
c) you want to know which positions you are already in that you should hold onto as price is likely to continue in the trend direction?

e.g. I like trend-following for long-term positions so I don't use indicators that give me early signals of the start of a trend, I only want to join the trend when I can see it is already well established and "smooth". I use MA's and daily and weekly time-frame charts. For me, an interesting uptrend has to have -
20EMA sloping upwards
50EMA sloping upwards
20EMA above 50EMA

After that I look at weekly bars and weekly closes over the last 3 months in relation to the 50EMA to gauge which trend will get my priority.

This approach suits my strategy but it will never get me in in the very first couple of days of a trend, because that's not what I want.
 
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member275544

0 0
one method that is very effective for me, and very similar to what Tom has just mentioned
i only look at the weekly timeframe, and i use just the 30 week SMA and where price is in relation to it, to determine beginning trend patterns, continuations and end of trend. The actual periodicity of the average is largely unimportant. it could be 30 it could be 50 its how price has reacted in the past, and used to determine the initial breakout which will depict where the trend actually started for me.
its worth mentioning that there is no one method, it all depends on what you're looking at. some stocks wont work well with the method i highlighted above, and the ones that dont, i just leave alone and move on
 
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Guest504442

0 0
I like to draw channels, not only can they help determine trend direction, they also give an indication of the current volatility - so you have an idea of where to enter and exit a trade. When price breaks through a channel line, it can indicate a change of sentiment. Channels are easier to draw than other shapes because the angle of both lines is the same so less data points are needed thus, they can be identified sooner.
 
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Guest504442

0 0
Here's a 30 minute chart of the DOW that I've been using this week. As you can see, its full of channels. I normally tidy it up as I go along but I've redrawn both top and bottom channel lines for illustration. You'll notice lots of horizontal levels too, I think these are even more important than trend lines! Hope this helps.
Dow Channel.JPG
 

J_C_Anderson

Active member
132 25
Most of the indicators are trend-following, so several indicators could be useful. There are interesting articles related to different indicators. Some of them could be a bit difficult to understand for the newbie trader, but it could give some interesting ideas.

As for me, the best trend-following indicator is EMA (9 for 5M and 200 for 1D). At the same time, somewhere was an information that large institutional investors use 200 SMA on daily charts to identify global trends and 30 SMA on small timeframes as average price to close position.
 

0007

Senior member
2,376 663
It's worth looking at linear regression (of price) qualified by R-squared (Coefficient of determination). Overcomes many of the inherent disadvantages of moving averages.
 

correct23

Active member
159 5
There a lot of ways to identify trend, but what methods are the most effective, in your opinion?
my method is seeing higher highs for up trend and lower lows for down trend. the heat map can show if the trend will continue, by showing if there are big levels of liquidity that supports it.
 

snamp123

Newbie
2 0
There a lot of ways to identify trend, but what methods are the most effective, in your opinion?

Answer may vary depending upon the instrument you are trading ( equities/Indices/forex) and time frame you are trading ( day trading/swing/positional). Are you a day trader and want to predict for the day or a positional trader.
 

tomorton

Legendary member
8,400 1,338
my method is seeing higher highs for up trend and lower lows for down trend. the heat map can show if the trend will continue, by showing if there are big levels of liquidity that supports it.


This is an interesting approach, parallel to what I do. I don't use heat maps but if planning to e.g. go long on EUR/AUD, I look at the other major EUR charts and see if their MA's are unbroken, if they slope upwards, if they are in consistent uptrends also, if their short MA's are above their long MA's etc. Same principle, looking for strength beyond the individual chart.
 
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tomorton

Legendary member
8,400 1,338
Answer may vary depending upon the instrument you are trading ( equities/Indices/forex) and time frame you are trading ( day trading/swing/positional).........


You really have a trend-assessment approach specific to given time-frames and markets?

You might want to say more about that please, as its an unusual approach.
 

CertainWay

Junior member
47 11
HI
To answer your question:
1)First you have to be specific. Trend in general is made up of a series of higher highs/lower lows. But then, a trend in one time frame maybe congestion or range bound market in another time frame.
2)So you always identify what time frame you are going to be trading first and then ask yourself, 'how do I identify a trend in my focus time frame?'.

3)There are myriads of ways to identify trends and it's different for different people. Some use moving averages, some just use price action, some use market profile, etc.

4)In general, if a market is in a trend run up in your focus time frame, you can see that the upswings are larger than the downswings and vice versa for a trend run down.

5)Momentum precedes price.

6)Personally I tend to use a combination of Volume Weighted Moving Averages, Price Profile,a few basic candlestick patterns, and certain patterns(on higher time frames that helps me separate volatility break-outs with range bound days that helps me to switch to a breakout mode or trade congestions).

In general you have to study charts, focus on various time frames, study patterns, price action, price action vs volume, etc and come up with something that suits your personality.

If I knew what I told you in the last sentence above, it would have saved me years of time but hey better late than never. Ultimately trading is about finding oneself and become aware of how one relates to the price action and simply find things that work for him/her and sticking to it.

Thanks
CT
 

correct23

Active member
159 5
A trend is first of all a price movement. when there is an exhaustion of buyers/sellers in a price range and power of sellers/buyers on the other end a trend shift may occur, and that shift in price direction is support with aggressor s a trend is happening. I use the Bookmap heat map to see if exhaustion happens by watching graphically the volume dots and then if there is high liquidity that support the price.
 

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