How to know if a trend is losing strength?

Hi! I’m day trading for couple of months now and i think that i’m finnaly getting the hang of it :wink:
But there has been something that i have been wondering about. Is there a way to know when a trend is loosing it’s strength and slowing down for a possible pullback or reverse?

So far i’ve been using fib retracements and extencions for possible areas of support and resistance and stocastics overbought and oversold signals to place a trade it’s been working but i whould like adicional signals to confirm the reversal.

What do you guys use?

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IMO, price action is the best way to interpret if a trend is losing strength. Candlestick patterns like the pin bar, inside bar, and doji patterns are good ways to start to identify a pullback or correction. It sounds like you have a good base to start with just build on that and learn to really READ the charts and not depend so much on indicators.

The reason I say price action is the best way is because ALL indicators are lagging, only price action is current.

Good luck

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Have you tried the Heiken Ashi indicator? It can help give a better idea of whats going on. It kinda cuts out the noise in the market.
Think of it more as an average of price action though. The candles are calculated like this instead of the usual way

  • Open = (open of previous bar+close of previous bar)
  • Close = (open+high+low+close)
  • High = maximum of high, open, or close (whichever is highest)
  • Low = minimum of low, open, or close (whichever is lowest)

As with everything in forex give it time, it may look pretty straight forward at first but it comes fully loaded with useful information :cool:

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For bullish reversals look for breaks of lower highs, and for bearish look for breaks of higher lows.

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The heiken ashi is still a indicator that will get you in the market later more often then earlier, the open close low and high will all be different then the actual open close low and high. Although it is viusally pleasing to the eye,I digress, if you can learn to trade and be profitable with it than more power to you, to each their own I suppose

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Really? you think a pin bar isn’t lagging?

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I hope I’m not being too obvious but from an indicator point of view aren’t two moving averages the basic way to spot a slowing trend/ potential reversal?

One fast, one slow. As they move closer the trend is slowing and when they cross the trend has a higher probability of reversing. No matter how fancy an indicator appears or how many lines it uses I think most of them are just extentions of this principle.

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Re: How to know if a trend is loosing strength?
Yes there is all you need to do is use momentum indicator such as the ADX trend indicator value that will help you to identify the strongest and most profitable trends to trade. ADX clearly indicates when the trend is gaining or losing momentum and to know when strength trend is falling or loosing its strength, the line falls, and price enters a period of reverse.The ones you have used are relatively good but you can also I think you can try Relative Strength Index (RSI)

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what do you think? its not based on a indicator and it is actual price so I cant really see how it would be lagging

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I use a combination of Price Action, higher lows/highs continuing and Exponential Moving Averages. Between the three I find I get a pretty clean chart, very little lag and a pretty reliable indication of a trend stalling/reversing. You don’t have to be right all the time, after all, just most of it, so nothing will be 100%.

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It’s simple - it’s when you see stopping volumes.

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Thanks everyone really good advice!! I’m really happy that i got so many helpfull replys!

I’ve started looking at Candlestick patterns like raging bull suggested :wink: but i’ll look more into the other suggestions. Adding moving averages to the chart is a good idea but i found them a bit distracting since i draw a lot in my charts (perhaps i’ll replace the EMAs with a MACD). Also tried out the ADX and didn’t like it :frowning:

Anyway, again thanks lot for the replys.

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Some traders recommend using the ADX as a filter. Rather than using it per day, they only use it when the ADX is above 80. If it is low they don’t use it.

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Pingback, I’d have a closer look at ADX if I were you.

I’ve never seen an ADX reading over 60, and the generation of the figure makes much past 60 very, very difficult

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If you’re not making new highs 2-3 bars when you’re Bullish and new lows 2-3 bars when you’re Bearish and the range of pips n average is decreasing that’s a clue. As mentioned, oscillators will warn you of this with divergent signals .
There is no precise way to know 100% of the time. You have to let price and the market move, capture the profits with probabilities and good money management.

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Sorry, my mistake. Yea, ADX has a lower scale than some of the other indicators. So not to mislead anyone I got this from a Book I was reading. How to trade forex for a living. The Author said he uses ADX as a filter, so anyone interested in this might want to look it up.

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Use stochastics! But i use other oscillators to determine the liquidity of the market. This can help determine when buyers are exhausted and when sellers are salivating.
Also, I neglected candle stick patterns for some time now and IMHO, it is pivotal in “determining” market changes. But you have to be vary careful and not just use one type of refernce for market movement. It has to be from a combination!

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i think… divergence helps us a lot in determining low momentum of trending chart… the problem is … trends can reverse w/o divergence… if thats the case… i use adx… anything below 25… its a weak trend… im suing divergence with AO indicator by bill william if u r using mt4… normal macd will do aswell

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You have this mistaken, or rather your terminology. Oscillators do not show liquidity of the market. Spread, order flow and Level two market depth show liquidity to a given degree, although not representative of the entire market.

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Hello Traders,

There are plenty of ways to see whether a trend is losing strength just based on the price action only - using no indicators.

First off - in regards to the question as to whether a pin bar is lagging, to some extent yes it is.

Yes because the pin bar by itself is a reaction to a price level and sellers rejecting price at a particular level. Thus, the pin bar is the result of the order flow - not the cause. Because of this - a pin bar is to many extents lagging because the order flow came in at the top/bottom of the pin bar, and those chasing to get the next best price created the wick of the pin bar.

Now as to how you can determine if a trend is losing strength, there are almost invariably two signs from a price action perspective a trend is losing strength. They are;

  1. a greater/increasing presence of counter-trend players
  2. an exhaustion/climax type move

For the first example - you will see this as a trend that was highly imbalanced, but then started to produce greater counter-trend swings. If the swings continue to increase and you see less price spreads, then its almost always showing a weakening of the trend by the very fact the counter-trend players are coming in with greater presence via the price action.

For the second example, all you have to do is spot exhaustion or climax price action, which is the result of the last traders chasing the market higher, along with the institutions giving it one last push to trap late traders in, thus fueling the counter-trend move after they exit and look to reverse (well - that’s part of it as there is more, but describes the gist).

So the answer to your question is - identifying trend transitions /losing strength is quite easy to identify when you learn to read the price action well.

There is a ton more I could say on this for pages on end, but hopefully this helps give you some ideas. I actually wrote a large article discussing this at length called ‘How To Trade Trends in Forex - What You’ve Been Missing’ which gives plenty of examples, along with talking about the order flow behind these trend transitions discussing this topic and elaborating on it further - so feel free to check it out should you wish.

Hope this helps for now - but a good discussion indeed and a critical topic for trading price action.

Kind Regards,
Chris Capre

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