How Do I Identify A Trend?
Identifying a trend is one of the basics of reading a chart. To identify a trend, open your charting platform and zoom out a little bit. If you have loaded the template I have provided you for attending this series, then take a look at the zig zag indicator to see whether price is creating higher highs and higher lows or lower highs and lower lows.
Look at the BIG Picture
- When we look at the example below, what do we see?
- Lower highs and lower lows…this means that the EURUSD hourly timeframe is in an overall downtrend.
- In this scenario, we would want to short/sell high at the peaks in the market.
What Is Trend Duration?
Trend Duration is the projected time that a trend will last. You will find that looking at different timeframes and assets will produce different trend durations.
Calculating the projected trend duration will assist your trading confidence in knowing how long you may be staying in that trade and when to exit some of your positions.
Identifying Trend Duration
In the example below, we are using the USDJPY on an H1 timeframe. The vertical lines display the overall trend duration that has occurred over the past few months.
What we find is that the trend duration was 9 days, 19 days, 7 days, 27 days.
What can we tell from this? That there will be approximate weekly durations up to one month on our positions.
What I would personally do with this information is open 4 positions per trade with a 1/1 risk to reward, 2/1 risk to reward, 3/1 risk to reward and trail stop the fourth position until it is stopped out.
Stick To The Overall Trend
Once you can properly identify a trend and the approximate trend duration, one main thing to remember is that you should always stick to that trend.
Although you will experience moments of consolidation, you will also be able to follow much larger moves when the market is trending.
In an uptrend, buy low and in a downtrend, sell high.
- The next important key that you should remember in trading with the trend, is to always use a trail stop.
- A trailing stop is where you simply move your SL (stop loss) and your TP (take profit) as the market moves in your favor.
- This will not only increase your profit potential it will protect your profit that you’ve already made.