Is there a general rule as to the minimum number of candles that should be considered to identify an uptrend or downtrend?
I’m doing well recognizing potential reversal patterns, but I get confused when trying to identify if I’m really going up or down. Am I overthinking this?
For example, some of the reversal patterns require that a certain candle type happen on an uptrend. However, sometimes the preceding 3-4 candles are all over the place and might move up for only 2 candles, then back down again for 2 candles. I’m guessing at that point, I should be looking for the closest identifiable uptrend? However, I’m not sure how many candles qualify a true uptrend.
Trends in candlestick charts can be very short, going up and down.
These trends can be enveloped by a longer trend.
Such a trend can be again enveloped by even a much longer trend.
You can, therefore, have trends within trends.
A decent way of analysing the trend is to introduce the Guppy Multiple Moving Average.
Blue lines are 3,5,8,10,12,15 periods exponential
Red lines are 30,35,40,45,50,60 periods exponential
The result is very interesting.
What you see is not only the direction of the major trend but also, very importantly, the character of the trend - whether it is a strong trend or a weak, fickle one.
There is a whole set of rules with the GMMA to analyse the trend and predict what is most likely ahead.
These rules are very powerful.
Once you see the trend about to change direction, a rule called a [U]count back [/U][U]line[/U] is introduced to give you the correct entry.
This rule also gives you the stop loss.
It is a very powerful method.
I strongly recommend this approach when dealing with trends, whether you are using a bar chart or a candlestick chart.