Determining the Trend

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Determining the Trend

Postby tonyl226 » Wed Nov 25, 2009 1:14 pm

If anyone would be grateful enough to share their thoughts on the following topic, that would be sincerely appreciated:

I usually trade on the 15 minute charts. In determining the "trend," I know that there are a number of ways traders go about this, whether its using the 5 EMA & 10 EMA of the 4 hour chart to determine the trend of the 15 M chart, or whether ther price is above/below the 100 SMA, 150, SMA, or 200 SMA.

Personally, I believe drawing trend lines on the daily chart is the best way to determine the trend. However, I've been back testing with software that I need to program, I while I am proficient in programing with indicators and moving averages, programing trend lines is beyond my capabilities.

Just to contribute my two cents to the topic, I have found that the 21 EMA & 55 EMA work well on the 1 H chart to determine the trend on the 15 M chart (ie., If 21 EMA above 55 EMA, then trend is up, etc.) I chose 21 and 55 since they are numbers in the fibonacci sequence, no other reason.

Also, I'm not too convinced of the merits of the ADX/DMI.

So, if would anyone please let me know how they go about this?

Thanks,
tonyl226
 
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Re: Determining the Trend

Postby Joe Whitehorse » Wed Nov 25, 2009 3:18 pm

You first need to identify the components of what constitutes a trend & then work from there.

Trends exist on all timeframes from tick to monthly.
The price trail on a typical currency pair being observed & traded on a 5 minute timeframe will look very different to that being observed & traded via a 240 minute timeframe.

The definition of an up trend is for prices to make higher swing highs & higher swing lows on whichever timeframe chart you’re tracking it on.
The trend comes to an abrupt halt, albeit temporarily, when it fails to print a new high.
Reverse for a down trend.

That’s it really. Nothing more complicated or in-depth than that.

You can dress it up in as many different indicator costumes as you like, but the concept can be just as easily observed by eyeballing any naked timeframe chart of your choice.

If you’re looking to trade a multi-timeframe combination: tracking prices on say a 60 minute chart & executing your trades on a 5 minute chart in the general direction of the 60 minute flows, then all you need do is identify a clear directional bias & mark off the most recent high (in an up trend) or low (in a down trend) as prices pullback, & work your plan around that angle.

Below is a snag of the AUDUSD daily timeframe chart.
You can clearly see it’s exhibiting solid upward directional bias behavior.

From the 1st quarter of this year, when it was consolidating & basing out on the back of a down trend, the first (technical) signs it was attempting to establish a long bias was when prices scaled & closed above January’s momentum high price of 0.7270.

It then proceeded to trade higher highs & higher lows, only breaking down 3 times this year (round black highlighted marks). The black lines signifying the resumption of the prior trend by penetrating the previous high.

If you plan & establish this type of basic exercise when determining your own analysis on whatever timeframe combo you choose, then you’ll ensure you’re placing yourself to the correct side of the price flows.

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