The Trend is your friend until the end

It is proven that traders only have a 30% chance of making money when trading against the trend. When the trend is up, we only look for setups and triggers to go long and when the trend is down we only look for setups and triggers to go short

USING TREND LINES TO IDENTIFY THE TREND

The trend is always determined using the larger time frame. Trend lines are used to identify the future trend of the market as well as offer potential levels of support and resistance.

• Price moves in trends.
• Trends move in waves.
• The impulse wave moves in the direction of the trend.
• Followed by countertrend moves termed as Correction

The Trend is your friend until the end

The first step in identifying the trend is knowing “where you are in the market”. Specific time frames are set for varying time periods. This is specifically important when learning where price targets are (discussed later). In determining the trend of the market the following time frames need to be set for the various charts:

Weekly chart – see 3 years only.
Daily Chart – see 3 months only.
Hourly chart – see 3 weeks only.
Fifteen-minute chart – see 3 days only.
Five-minute chart – see 3 hours only.

  • The trend is always determined using the larger time frame.
  • Use trend lines to identify the trends
  • Trend lines are used to identify the future trend of the market as well as offer potential levels of support and resistance.
  • Buy dips if the trend is up and Sell rallies if the trend is down

An UP TREND is a series of Higher Highs and Higher Lows

With every rally in price that rises above the high of the prior rally (higher highs), and each correction down stops above the low of the previous correction and price reverses back up (higher lows) This is a Bullish trend.

A Down Trend is a Series of Lower Lows and Lower Highs

With every decline that takes the price below the low of the previous decline (lower lows), and each rally stops below the high of the previous rally and price reverses back down (lower highs) This is a Bearish trend.

The Trend is your friend until the end

Trends are created by an imbalance of demand and supply; this moves the price up or down. Usually, movements in the market tend to have a relationship to each other. Prices will alternate between areas where prices have been marked up to a new higher level or marked down to a lower level. After a big move in either direction prices will consolidate at that new price level.

Trends usually begin from low volatility sideways / contracting price zones or from an area of price equilibrium. Once there is an increase in demand, the price breaks out of this equilibrium area and it is bid higher or marked up to the next level where the market consolidates at the new equilibrium zone. (The opposite happens in a downward market).

Trends do have greater odds of continuation rather than reversal. A trend in motion will tend to continue in motion until a major event takes place that would cause it to change its direction.

Trends in most cases do not change direction without giving signals or warning signs that the trend is about to change. It takes time for a trend to change so these signals are usually a price pattern / candlestick formation and sometimes accompanied by a buy or sell climax. Momentum confirms the trend, if there is no Momentum there is no trend. The breakout of an equilibrium zone would be evidenced by an increase in volatility and momentum until prices reaches the next level of equilibrium where volatility will decline and momentum will decrease, going back into consolidation.

“Volatility is greatest at turning points, diminishing as a new trend becomes established.”

– George Soros

A loss in momentum is not a sign of trend reversal it is merely a pause in price. The loss in momentum and volatility is because buyer and sellers now agree to the new established price level or the new level of equilibrium. They will continue to buy and sell within a narrow range which is known as backing and filling, thus forming some of the known patterns like triangles, wedges, flags etc. The breakout in between equilibrium zones offers the best possible profit for the traders

Here are some characteristics that are commonly found in strong trends:

  • There is a big gap opening on the day.
  • There are trending highs and lows (swings).
  • Most of the candles are trend / momentum candles in the direction of the trend.