Identifying what are market trends is a highly subjective issue and discussion point, amongst the trading community. Although the definition of what a trend actually is will vary, depending on who you correspond with, most experienced traders will testify that trends should be measured over weeks and perhaps months, not individual trading sessions, or days. However, trends are relative to the individual trader and the method/strategy being used. A trend could relate to a: session, a trading day, week, or month, there are no definitive rules relating to the identification of a trend. It’s worth referring to Wikipedia and Investopedia, to establish what’s regarded as a standard definition of a market trend.
“A market trend is a perceived tendency of financial markets to move
in a particular direction over time. These trends are classified as secular for
long time frames, primary for medium time frames, and secondary for short time
frames. Traders attempt to identify market trends using technical analysis, a
framework which characterises market trends as predictable price tendencies
within the market when price reaches support and resistance levels, varying
over time. A trend can only be determined in hindsight, since at any time
prices in the future are not known.”
This definition of market trends is useful as a standard, as it
clearly categorises trends into three clear groupings; secular, primary and
secondary. For retail FX traders this would loosely reference “secular” as
trends for swing or position traders, “primary” for swing or day traders and
“secondary” for day traders or scalpers. There’s also a useful ending to the
definition quoted; you can only determine a trend in hindsight. It’s always a
complex issue and tricky exercise; attempting to identify a trend whilst it’s
developing, as you have no idea when the trend will come to its end.
Many experienced traders and various sources, will claim that
markets range more than they trend. Some estimates would suggest that the ratio
is approximately 75-25%; that markets range circa 75% of the time and only
trend 25% of the time. Naturally, the higher up the time frames you reach, the
greater the problem this represents, as you might be required to sit out
roughly 7 out of each 10 trading days and sessions, whilst price ranges, or
simply moves sideways. This can represent quite a challenge, particularly to
novice traders, who’ll be inexperienced and desperate to witness price action
develop each trading session and every day, that they can potentially take
advantage of.
There are various technical indicators which you can use to identify
trends, the MACD, ATR and RSI are popular, as are moving averages. Using moving
averages (MAs) as trend identifying indicators, is a logical step, as MAs
reveal how a security is behaving over a select period of time; perhaps 50, 100
or 200 days. If price is above or below these values for a significant period
of time, when observed on daily time frames or above, then you could be
identifying medium to long term trends.
To identify medium to longer term trends, many traders will use
several different time frames; they’ll perhaps flick between: fifteen minute,
hourly, four hour and daily charts, in order to see if they can isolate price
action, which is representative of trends developing. The thought is a logical
process; can you drill down through the smaller time frames, in order to
precisely identify the genesis of the trend; where it actually started and then
begin to plot similar price action behaviour, on the higher time frames?
Did the trend begin with the announcement of a major economic
calendar event? For example; did the USA FOMC announce a change in interest
rate, or a change in their monetary policy outlook? Often significant trends
will begin with such an accelerant. If you analyse the movement of USD versus
many peers during 2018-2019, it will correspond with the FOMC/Fed easing the
rate, from 1.5% to 2.5%, during an approximate twelve month period.
This method of identification is quite standard and employed by many
experienced traders – flick through the time frames and try to establish if a
trend began with a major announcement or data release. The difficulty, as
previously mentioned, is you must take care to allow for the (mostly) ranging
periods and note that you have no idea when and if the trend will end. You’re
still faced with blank white space to the right hand side of your chart.
However, this multi time frame analysis method, is by far the most popular way
to identify trends, that experienced and successful traders will refer to. It
also offers you the chance to calmly, identify relevant price action. And if
you’ve missed what you think is the genesis of the trend developing, you can still
attempt to bank pips as the trend develops, as you’ll be exercising good
judgement, by waiting for further confirmation before you commit.
Can the trend still be your friend, on several time frames?
May 13 • Forex Trading Articles, Market Commentaries • 3136 Views • Comments Off on Can the trend still be your friend, on several time frames?
Identifying what are market trends is a highly subjective issue and discussion point, amongst the trading community. Although the definition of what a trend actually is will vary, depending on who you correspond with, most experienced traders will testify that trends should be measured over weeks and perhaps months, not individual trading sessions, or days. However, trends are relative to the individual trader and the method/strategy being used. A trend could relate to a: session, a trading day, week, or month, there are no definitive rules relating to the identification of a trend. It’s worth referring to Wikipedia and Investopedia, to establish what’s regarded as a standard definition of a market trend.
“A market trend is a perceived tendency of financial markets to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames. Traders attempt to identify market trends using technical analysis, a framework which characterises market trends as predictable price tendencies within the market when price reaches support and resistance levels, varying over time. A trend can only be determined in hindsight, since at any time prices in the future are not known.”
This definition of market trends is useful as a standard, as it clearly categorises trends into three clear groupings; secular, primary and secondary. For retail FX traders this would loosely reference “secular” as trends for swing or position traders, “primary” for swing or day traders and “secondary” for day traders or scalpers. There’s also a useful ending to the definition quoted; you can only determine a trend in hindsight. It’s always a complex issue and tricky exercise; attempting to identify a trend whilst it’s developing, as you have no idea when the trend will come to its end.
Many experienced traders and various sources, will claim that markets range more than they trend. Some estimates would suggest that the ratio is approximately 75-25%; that markets range circa 75% of the time and only trend 25% of the time. Naturally, the higher up the time frames you reach, the greater the problem this represents, as you might be required to sit out roughly 7 out of each 10 trading days and sessions, whilst price ranges, or simply moves sideways. This can represent quite a challenge, particularly to novice traders, who’ll be inexperienced and desperate to witness price action develop each trading session and every day, that they can potentially take advantage of.
There are various technical indicators which you can use to identify trends, the MACD, ATR and RSI are popular, as are moving averages. Using moving averages (MAs) as trend identifying indicators, is a logical step, as MAs reveal how a security is behaving over a select period of time; perhaps 50, 100 or 200 days. If price is above or below these values for a significant period of time, when observed on daily time frames or above, then you could be identifying medium to long term trends.
To identify medium to longer term trends, many traders will use several different time frames; they’ll perhaps flick between: fifteen minute, hourly, four hour and daily charts, in order to see if they can isolate price action, which is representative of trends developing. The thought is a logical process; can you drill down through the smaller time frames, in order to precisely identify the genesis of the trend; where it actually started and then begin to plot similar price action behaviour, on the higher time frames?
Did the trend begin with the announcement of a major economic calendar event? For example; did the USA FOMC announce a change in interest rate, or a change in their monetary policy outlook? Often significant trends will begin with such an accelerant. If you analyse the movement of USD versus many peers during 2018-2019, it will correspond with the FOMC/Fed easing the rate, from 1.5% to 2.5%, during an approximate twelve month period.
This method of identification is quite standard and employed by many experienced traders – flick through the time frames and try to establish if a trend began with a major announcement or data release. The difficulty, as previously mentioned, is you must take care to allow for the (mostly) ranging periods and note that you have no idea when and if the trend will end. You’re still faced with blank white space to the right hand side of your chart. However, this multi time frame analysis method, is by far the most popular way to identify trends, that experienced and successful traders will refer to. It also offers you the chance to calmly, identify relevant price action. And if you’ve missed what you think is the genesis of the trend developing, you can still attempt to bank pips as the trend develops, as you’ll be exercising good judgement, by waiting for further confirmation before you commit.
« Aussie dollar falls, yen rises as a safe haven investment and USA futures for market indices slump, as China-USA trade fears stalk markets. U.S. equity markets slump as China responds versus tariff threats, JPY and XAU rise as risk off sentiment causes safe haven appeal to increase. »