How to identify trend for trading

May 14th, 2017 | By Syed Hasan | Posted In Blog, Forex, Pakistani equity market

I trade with trend. Trend following is simply following the direction of price. 
In terms of charts;
Uptrend – consists of higher highs and lows
Downtrend – consists of lower highs and lows

fffhigher high               FF L L
A market that moves in a radius of  few of points cannot be claimed having a profitable trend, and I high recommend to ignore and stay way from that. That is because I advise to look for a probable 3 to 5 points profit otherwise risk taken upon entry would not be justified.

I normally wait for opportunities which have potential to make, 3, 5 or 10 points. The golden rule of trading is not get engaged on every opportunity, even too small. I certainly don’t need to trade actively with any position during whole of the trading session.I must be selective while making entry trade. 

The biggest profits are made by keeping on right side of the market while markets are trending strongly and breakouts.
3 trends lines finalWhen trend is close to 45 degrees forming regular curves then it can be long term and if you entered into a trade against such trend, that trade may cause large losses and I recommend such trade to be squared off in any of the next deep correction where loss might get minimal.

Trend above 45 degrees but still closer enough are medium term trends.

Trend getting above the 45 degrees and above the medium term trends  (in fact vertically inclined) is likely to be temporary and shall reverse soon strongly deep in to reverse direction as well.  However in such trends If volume pick up, then breakout may occur, no matter it would later follow a reversal most likely.

 

I would suggest few tips useful for profitable trading:

• In a bull market, look for stocks to buy, once either immediately resistance is broken or support has tested successfully.
• In a bear market, look for stocks to short, once either immediately support is broken or resistance has tested successfully.
• I, don’t enter trades in stocks with narrow range in flat market. I might end up losing money.
• Go long when stocks reach a new high. Sell short when they reach a new low.
• Breakout in up direction can be big if starting from low price end with high volume involved, as there is enough room to go up, and vice versa.
• Breakout can be big if in the direction of major trend of the day.
• Most of the times break out won’t occur and price may reverse if volume remains low, so profit taking regularly is key and delay may result loss.

 

Impulse and Corrective Wave

Trends have a repeating pattern of a strong impulse wave in the trending direction, then a smaller correction against the impulse wave, followed by another impulse. I need to isolate the strong impulse wave to determine the trend, spot corrections against that impulse, and then make a real-time trading decision when there is evidence to suggest the pullback is ending and another impulse (trend direction) is beginning.

corrective impulse new

At all times I must know in which direction the impulses are moving, because this is my trending direction and the direction I want to trade in. During a correction, I must remind myself that I will only trade in the direction of the impulses, and I am just waiting for an opportunity to get in on the next impulse.

How to find strength and weakness of trend

As a general rule the steeper the moves go its a sign of getting strength. On the contrary, if move is showing tendency of getting flatter, that indicate its getting weaker.

Say, for example if you find impulse wave in a downward trend getting flatter, its a sign sellers are losing control. Further you may notice the downward momentum will get weaker and the candle stick size also getting further smaller as it moves on.

Similarly, if you find corrective wave in a uptrend getting steeper, its a sign buyers are losing control. In addition, the upward momentum will get weaker and the candle stick size getting bigger.

Example:

◉ Slope of impulse move becoming flatter

◉ Slope of corrective moves becoming steeper

 

Slope of impulse moves getting flatter:

fullimpuse flatter

 

 

Slope of corrective moves getting steeper:

fff corrective steeper

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