How do you establish trend direction?

Using a Daily Chart, at what point in time do you start to determine the trend direction ? Sometimes there is an uptrend visible within the last few days or the last week, but if you go back further in time, you may notice it to be a down trend. For example, EURJPY showed an obvious uptrend recently looking back at the last 10 days or so, but if you zoom out and look at the chart from mid January to now, it shows a downtrend. So uptrend or downtrend ??? Can anyone help answer this ?? :confused::confused:

trends are a very complicated thing. there“s long term trends and short term trends and we may consider the multi time frames trends.

trends are designed by waves and each wave is a short term trend of the long term trend. sometimes price is ranging in one TF and with a powerfull trend in a different one.

unfourtunelly the only way to see a trend direction, longitivity, power, angle… is looking at the past history and then assume that the price will keep going in the same direction in the future.

right now at the eurjpy short term trend in my opinion price is at the end of a very weak up trend and starting a weak down trend because we can see a double top breakout and a new lower high forming. the long term trend in the same pair is going down…

Trend is subjective just saying up trend or down trend is not helpful to a trader. Time frame and strength or speed have to be defined. If you take a trade based on the trend or trends, it could be up and down at the same time on different time frames. The definitions of trend you are using will help you determine things like SL and TP for the particular trade.

I will share my super secret never fails trend indicator that I really do use with you. Use at your own risk:D. I got the idea from something TalonD said;)

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Just so you know you don’t have to know the ā€œtrendā€ to trade. If you are confuse you shouldn’t trade, and thats what trying to identify ā€œtrendsā€ does.

If you need to define trends as part of your trading strategy you need to define the trend according to the timeframe you are trading on, every trend is made up of sub trends you need to identify the ones that are most relevent.

what is a bearish trend on a 15min chart can be an uptrend on another timeframe.

the whole thing can make ur head spin.

You will hear a lot of answers. They are all partly right, and they are all wrong in the sense that none of them will make you any money.

Trends are historical. When you are looking at a trend, you are looking at the past. Whether it be the last 5 minutes, or the last 5 years, it’s a graph of what has happened. It has NOTHING to do with what WILL happen.

Therefore trends are a guide, and nothing more. Most traders (myself included) say ā€œfollow the trendā€, but we also lose money because sometimes the trend is wrong. We get the perfect chart, with the perfect trend and whoops, 5 seconds after we take a position, the trend reverses. It happens all the time.

So if I were you I would listen to what people have said, but also realize that ā€œspotting the trendā€ is not much much better than just trading at random. It’s impossible to quantify exactly what percentage of an advantage it gets you, but in my experience it’s not all that great. If it worked that well we would all be rich, right? DO NOT BET THE FARM ON A TREND.

Just be aware that it’s money and loss management that will let you make money, not necessarily the trend. Trends change all the time.

The thing with trends is, once you’ve identified it, it will change.

You can quantify the advantage, and its statistically significant, and furthermore that advantage is large enough to become as rich as you’d probably ever need to be.

Without a shadow of a doubt, trend is the most important aspect of most trading systems. Get that right, and the rest falls into place. You can make money from randomly timed entries and exits if you can get the trend direction right. Unfortunatlely the OP isnt going to find the answer he’s seeking in the public domain, he’s going to need to work.

Lets face it, anyone whose seriously interested in making money isnt going to bet the farm on anything, but if you realy had too, I’d pick trend every time.

You got me thinking there actually with the advantage thing, and it struck me how amazingly close to real life identifying a trend is, clothes to take the obvious one I suppose, you don’t know what the trend is until it has been established and at a whim it can change again, just as well as it might stay for ages, but same effect if you’ve identified the right trend right you will gain a massive advantage.

How about the Giorgio Armani Trading system? :smiley:

OK, please quantify it. Let’s have a bit of science here - and see actual numbers. Oh and of course I will need to see the articles you are referring to.

It’s simple it’s as long as a piece of string, and here’s the science behind it String theory - Wikipedia, the free encyclopedia

I am referring to proprietry research. If you want to see some numbers, you’ll have to do some work for yourself.

Take a reasonable number of trades completely at random, lets say 1000 trades, I very strongly suggest that you exit each trade after N bars rather than using stops or targets. I’ll let you determine an appropriate number for N. Now divide those trades into two samples of profitable and non profitable trades. If you’ve seleceted an appropriate value for N then the win rate should be approximately 50/50, with the average gain, similar to the average loss.

Go back and look at the charts, and retrospectively define ā€œthe trendā€ for each of those trades across a variety of timeframes.

For the poulation of profitable trades determine what percentage coincided with each of the ā€œtrendsā€ that you retrospectively defined. Do the same for the sample of losing trades. Are the differences significant ? or is there still a 50/50 distribution ?

Thats all I’m prepared to disclose on a public forum but its enough to get anyone started off in the right direction :smiley:

Lol. OK, I am from a science background. I have a doctorate, in fact. Which is why I don’t believe anyone who makes claims and somehow fails to back them up. I could, of course, claim that I have ā€œproprietary researchā€ that proves just the opposite of what you’re saying. And not show you the numbers. However there’s not much point of going into that in an internet forum. You keep your secrets. I’ve done ok for myself so far without them.

Getting back to the main point - if your secret is so secret that no one else can know about it (without, as you claim, extensive research), then my comment stands - trends don’t deliver much better than 50-50 for JOE AVERAGE, the one who doesn’t know your secret. You claim that using your special ā€œmethodā€ you can get better. Good for you. The person who asked the question, however, won’t be using this method.

Myself I use trends, because trends indicate momentum. I believe in momentum because everyone else believes in momentum. If the market is moving one way, who am I to say no? The secret, however, doesn’t lie in judging the trend, it lies in judging WHEN TO GET OUT. In fact, your own method describes exactly that. Stay in long enough and you’ll get burned.

I’ve suggested an extremely trivial methodology that allows people to establish the facts for themselves and most people could probably set up a backtest to do so with a few minutes. I’m a PhD from an engineering and science background too, but all you really need is high school maths to verify what I’m saying is true (or not true).

Its not a case of keeping secrets, I’m being completely open, but I’m not prepared to share proprietry research with a bunch of strangers on a forum, particularly when its such a trivial undertaking to produce that data. Its really a case of if someones not motivated enough, or smart enough to do something so simple, then they definately lack the motivation or intelligence to understand the information I’d be giving them. Common sense alone should tell you that if the markets rising over a given period of time, then if you randomly open 50 buy trades, and 50 sell trades, then the buy trades will tend to do better than the sell trades.

I didnt mention exits, in fact I specifically stated that you would be well advised NOT to impose an exit strategy other than closing after N bars. Of course its entirely possible to design an exit thats worse than random, and so poor that it eliminates the positive benefits derived from correctly assessing the direction of the underlying trend, but thats a different issue.

The point that I’m making is that its easier to swim with the tide, than against it. Once you undertand which way the tides flowing, the next stage is to think about exits.

I use a standard technical analysis techniques to determine trend, and I’ve seen exactly the same methods and settings discussed in detail on a wide number of forums, reccommended in books, and implimented by software vendors etc. What I use is pretty much irrelevant, becuse practically any reasonable method if applied correctly will work. The fact that I may use indicator X with parameters a,b,c and d to determine trend is of no help to anyone unless I fully disclose every other component element of my system. Id probably argue that providing that sort of detailed information about specific elements of a system is probably quite detrimental, because you can pretty much guarentee what works in the context of my systems, wont work for others.

The fundemental issue is that trend is important, and identifying trend direction correctly provides a substantial edge, its one of the fudemental building blocks of any trading methodology, and it shouldnt simply be discounted on the grounds that its a difficult concept to grasp. Most things are equally difficult, and require similar effort.

From personal experience I’ve found that entry trigger, or exit method, or trade management, or position sizing when used in isolation cannot create positive expectancy over the longer term. Each in isolation can certainly improve a system, and improve it drastically. However techniques that improve trend determination better than 50/50 can create positive expectancy [B][I]completely in isolation[/I][/B], and its for that reason that I’d argue very strongly that this is where new traders should focus their efforts.

I don’t like to brag and I realise that this is someone else’s thread.

Nevertheless, I am a retired school teacher of mathematics, physics and chemistry.
So I am of the same ilk as you are and, therefore, you may be interested in visiting my current thread…:wink:

http://forums.babypips.com/newbie-island/32400-finest-trend-trading.html

It is scientifically rigorous and looks at trends from several viewpoints. :slight_smile:

The thread is divided into topics and our present contributors are experienced traders.
Currently we are doing some interesting research and testing. :cool:

I know the thread is long now (>200 pages) but every reader that has been thro it has found it to be rewarding.

I, therefore, commend it to you. :slight_smile:

Look at how I draw the trendlines on this chart. For downtrend I draw line across 2 or more consecutively lower highs. For uptrend I draw line across 2 or more consecutively higher lows.

Whenever price gets near the trendline, you can buy or sell depending on direction of line. Once price breaks through the line and a bar closes completely on opposite side of the line without touching it, then you can assume a reversal of overall trend will happen soon.

What time frame are you trading on? That is the trend you should be concerned with. Using the higher timeframe charts to get an overview of the big picture.

If the daily is unclear then look at the weekly and monthly.

As far as the E/J it still looks to be in a downtrend as it has yet to make a higher high from may 09 while it is making higher lows i don’t believe you can say it has changed till the high is taken out.

Cheers

(I would stick with the trend is your friend, firstly however find where you are in the trend

Identify are you in the primary trend or secondary trend? I take the longer term view first by checking the daily, weekly and monthly.

With these charts identify support and resistance levels, then move back to the smaller time frames eg 1 minute 5 min etc

Rather than buying into the rallies find a pair that is trending but consider buying or selling the pull backs (counter trend trading), but do not just enter blindly look for a key reversal eg a candle with a long wick a twin candle set up with long wicks and volume increase will be added strength. Check to see if this reversal is setting up at a support level or Pivot Point, as this will provide support for your entry. Prior to entering also identify your risk, if you have entered and what is perceived to be support then risk or stop loss should not be too great

Another thing to take note off is what is the average daily range for a day with the particular currency pair? etc etc. Did it open up? where is the pivot point? Support and resistance areas 1, 2 &3? Are there announcements due and what time? Do you want to hold your trade during these times? are they likely to have a strong influence on price? Which market are you in U.K. U.S. Asian? personally I prefer the Asian as less volatile and easier for me to pick. Most would probably prefer the U.K as the most active but I find this market too hard to follow.

Is there a lot to consider too right there is, however by knowing as much as you can will reduce the risk you are in but does not take it away.