How a trend starts. Need help in understanding…

[Carl-os]

Hello, everybody! I would like to beg an advice of experienced traders. I’m only a beginner on Forex.
I think my way on Forex is really typical. I’ve passed through the 2-week courses at the dealing center -
and that’s it – I’m “ready to trade”. Now I’m reading books about Forex and trading on a demo account. The trouble is – I’m trying to open positions according to the trend direction, but as I only open a position – the trend immediately reverses. Could anyone tell – how to identify the trend direction at its very beginning, not at the end? or it is impossible?

That’s how I identify the trend now.

 

[JTrader]

The beginning of an uptrend = a higher low & a higher high
The beginning of a downtrend = a lower high & a lower low.

 

[nai]

You can use reversal patterns to identify the trend direction. They are explained very well in all the books about technical analysis. For example, try reading the book of John Murphy – “Technical Analysis of the Finacial Markets”

Here is an illustration from the book

 

[Carl-os]

You can use reversal patterns to identify the trend direction. They are explained very well in all the books about technical analysis. For example, try reading the book of John Murphy – “Technical Analysis of the Finacial Markets”
.....

Reversal patterns... But using them, I’ll open positions against the existing trend. And what about the well-known words “Trend is your friend”?

 

[nai]

Reversal patterns... But using them, I’ll open positions against the existing trend. And what about the well-known words “Trend is your friend”?

And how do you see whether there is a trend or not? Do you have any trading system now :?:

 

[Carl-os]

And how do you see whether there is a trend or not? Do you have any trading system now :?:

Among other things, I use indicators to identify the trend direction. But when a signal appears on the indicator, the price usually reverses for some unknown reason.

 

[Hunter FX]

Among other things, I use indicators to identify the trend direction. But when a signal appears on the indicator, the price usually reverses for some unknown reason.

Hello! Let me join to your discussion. A time ago I’ve solved this difficulty for myself, using the information from the site of an experienced trader http://www.masterforex-v.su.
Here is the definition from his book
"Trend is a directed movement of prices between two reversal patterns in opposite directions. The price movement on the trend is zigzag-like – the rollback wave follows each impulse wave. This balance between the impulse and the correction indicates the trend direction."
Here is a link to the entire chapter of the book
http://www.masterforex-v.su/002_000_01.htm

 

[rols]

1.Look at your charts from left side to right side on the timeframe you are trading from.

2. Is the bar/line on the left higher or lower than the bar/line on the right?

3. If it's higher then its an uptrend and if it's lower then it's a downtrend.

4. If it's neither higher or lower then there isn't a trend.

5. KISS

 

[TheBramble]

Carl-os ,catching the start of trends is what people do in books and on bulletin boards and usually only in retrospect. You don’t know it’s a trend until it exhibits the characteristics and profile of trend-ness.

If you want to pick tops and bottoms you have to ask those who pick tops & bottoms, but I think they’ll charge you for this skill.

As an interim measure to making some money, check the timeframe you're trading. Can you clearly identify a series of higher highs and higher lows; or lower highs and lower lows? At least two sets of them? Yes? That’s a trend. It’s more likely, though not guaranteed, to continue in that direction than not.

Want to add a little more probability to your side?

Do the same process in the next 2 higher timeframes.

If they are all trending, and all trending in the same direction, you have a good chance of your lowest timeframe (your trading timeframe) continuing with that trend. Plus or minus last swing high/low amplitude, or if you’re a real seat-of-the-pants type of guy, 0.618 the amplitude.

 

[Splitlink]

If you want to pick tops and bottoms you have to ask those who pick tops & bottoms, but I think they’ll charge you for this skill.

Whether they are right, or not.

 

[bbmac]

This thread may help

http://www.trade2win.com/boards/search.php?searchid=1578328

 

[alexander]

Could anyone tell – how to identify the trend direction at its very beginning, not at the end? or it is impossible?

How can anyone identify something that can only exist in hindsight?

Seriously, when I read the article by Michael Harris in Fidelity Active Trader website many things cleared up in my mind. I think it is a masterpiece. The link is:

http://personal.fidelity.com/myfidelity/atn/archives/august2003.html

Here is an excerpt about trends:

"The elusive trend

A price trend is probably one of the most elusive concepts in trading because a trend can only be identified after a significant portion of it has already formed. More importantly, every price level in a trend is a potential reversal point, making it impossible to know if prices will trend up or down at any given time.

Also, any indication of a longer-term directional bias cannot be determined from analyzing price data alone. This is because buyers and sellers match exactly at every price point; the only thing that differs is "price concession." When buyers concede to higher offers, prices move up; the opposite occurs when sellers concede to lower bids. However, there is no way of knowing traders' longer-term motives. Among other factors, short-selling and bluffing blur the market picture, resulting in "noisy" market conditions. Traders who understand how noise affects technical indicators, especially trend-following ones, know these tools have little value as the basis of trend-trading systems with a chance to be consistently profitable over time.

But in addition to the theoretical problems that explain why commonly used technical trend-following methods tend to fail, there are also some disturbing realities every trader becomes aware of at some point.

Sudden trend reversals can cause devastating reductions of open position profit, or even turn a profitable trade into a loser. Understandably, these events can adversely impact a trader's psyche, especially a trader with limited experience. Even veteran traders are not immune to the stress of holding open positions for extended periods of time and being subject to high volatility and adverse gap openings.

At the other end of the spectrum, many short-term traders become addicted to pulling the trigger and pocketing small profits after minimal favorable price moves. When it comes to trend trading, though, patience is a virtue. "

Alex

 

[TheBramble]

When I read your summary and the abstract you selected to reprint here, I assumed Harris was refuting the benefits or even the possibility of Trend trading.

When you read the entire article, which is quite good/not bad/quite dire/absolutely appalling , it is quite the opposite. He is advocating using longer term trends (these things that only exist in hindsight) in conjunction with short term price patterns to establish profitable short term trading setups.

I always find it amusing when we get these fads where it becomes fashionable to shake a stick at the most basic chart and market patterns which can be profitably traded in virtually every market and claim they either don’t exist or can’t be traded.

 

[Carl-os]

Thank you for elucidations, Hunter FX, TheBramble...
I will understand...

 

[alexander]

He is advocating using longer term trends (these things that only exist in hindsight) in conjunction with short term price patterns to establish profitable short term trading setups.

No, I think you missed the point. He is not using any trends. He is advocating that a side benefit of price pattern trading is often trend capturing but he carefully states "it is an added benefit".

A trend can be identified only to the extend of its portion that has already formed. In this sense he is correct to call trends elusive. Were they not, everyone here would be in Monte Carlo now having a drink at Jimmy z with his yatch at the port.

Alex

 

[TheBramble]

I'll leave you to read the article again as I got it the first time.

Having been through the 'non-existence of trends' with someone else a while back and realised it was largely futile, I'll simply suggest you pull up a 5 year chart of the DOW and ask yourself the question "What is it about the line that starts at about 8000-odd in Jan 03 and ends up at nearly 14000 today that I find elusive?".

It's important you only ask yourself this and don't respond as I want others to struggle long and hard with this one too.

 

[alexander]

"What is it about the line that starts at about 8000-odd in Jan 03 and ends up at nearly 14000 today that I find elusive?".

Hindsight is elusive. People do not trade by looking in the past but mostly (especially in trend following) by trying to extrapolate or follow future price moves. I wish I could do that, go back in time.

The question that you must ask yourself is the following: What your system or you would have done by January 2004 when the market started to correct, fell about 800 points and then moved sideways for the most part of the year? On hindsight it is easy to stay that the market was still in an uptrend. But reality is not hindsight. Nobody ever made any money at all in the markets using hindsight.

Alex

 

[dbphoenix]

Hindsight is elusive. People do not trade by looking in the past but mostly (especially in trend following) by trying to extrapolate or follow future price moves. I wish I could do that, go back in time.

The question that you must ask yourself is the following: What your system or you would have done by January 2004 when the market started to correct, fell about 800 points and then moved sideways for the most part of the year? On hindsight it is easy to stay that the market was still in an uptrend. But reality is not hindsight. Nobody ever made any money at all in the markets using hindsight.

Alex

If all one sees is numbers and bars, then knowing what to do is problematic. However, if one sees trader behavior and the continuing balancing act between buying interest and selling interest, the course becomes clearer.

Db

 

[TheBramble]

This isn’t complex. You look at your trading timeframe and determine if you can identify an existing trend. You look at the next two higher timeframes and do the same thing.

If you can determine a trend in all three and if they’re all heading in the same direction, then you have a better than 50% shot at it continuing in that direction.

Care and attention to stop levels as with ANY trading setup. Either you get stopped out because you’ve just entered as the trend reverses (it happens), or you’ve set your stop too tight compared with the amplitude of the previous corrections/rallies (also happens) or you run your trade into profit and onto your target or next minor correction/rally.

The question that you must ask yourself is the following: What your system or you would have done by January 2004 when the market started to correct, fell about 800 points and then moved sideways for the most part of the year?

What system? We were discussing trends. Let’s for the sake of argument take your position as stated. You’re long from 2Q03 at round about 8000 and watch your position push up through what was always clearly going to be a major S/R level – 10,000. It does in late 03. If I had been trading this instrument then on this timeframe my stop would have gone below the 10K level and with sufficient amplitude to cover the obvious stop running that was likely to ensue over a lengthy period. Bear in mind we’re talking about this as a single trading timeframe, no reference has been made to higher timeframes. But based purely on this timeframe, I’m still long and looking at the increasing price levels and decreasing volume levels and possibly bringing my stop in a little closer anticipating the 10K level being a difficult one to get away from, but without undue prejudice. In May we get the second lower low forming which is an indication of a potential new intermediate down trend, but not a confirmation. I’m definitely bringing my stop in close to the May low and by the time the 3rd lower low hits in July I’m already stopped out for a just sub-2000 point profit.

It’s not the concept that’s difficult, but as you’re obviously having difficulty understanding it, and me, and Mr. Harris, I’ll assume the fault is mine in not communicating my thoughts sufficiently well enough and confusing things so I’ll let someone else take up the running now as I’m out of gas on this one.

 

[barjon]

mmm, far as I know there are no fail-safe mechanics in trading and that goes for identifying an embryo trend.

However, it is possible to establish some (tested) rules/criteria that say "this movement MIGHT extend into a trend" (on your own definition of trend and timescale), with then a series of confirming triggers that increases the prospect from MIGHT to MIGHt, MIGht, MIght, Might, might. Like a series of amber lights where you might scale in as each one lights.

good trading

jon