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The trend is your friend Myth?

  • Post #1
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  • First Post: Edited 7:57pm Oct 14, 2008 7:32pm | Edited 7:57pm
This may sound like a stupid question but, are we actually trading minor reversals of the long term trend and not the trend itself?

If you look at this chart on USD/JPy it is easy to see that the trend has been down since 1982. Yet, "the trend is your friend".
Isn't any successful trader actually trading a reversal in the long term trend and not the trend?
Rather like looking at something that to the naked eye appears smooth but when looking at it under a microscope it appears jagged with peaks and valleys.
Are we basing the trend simply on Macro and Micro viewpoints?

Ah, so many questions.

http://img390.imageshack.us/img390/3230/trendfj3.jpg
Starting to see instead of just looking.
Well, if you go for like 20 pip, then indicator is your best pal, even trend is your best friend.
I think you guys are misunderstanding the point here.

This is a chart from the beginning of FX trading (online anyway) to present day. It is over a 20 year time span.
How can it be wrong?

I am simply mulling over the fact that, this is a 20 year+ trend and it is obviously a downward trend.

Therefore, are we trading the trend or micro retraces in the trend?
Starting to see instead of just looking.
i belief the main problem here is whether a trend exist or not ? The truth is that using random data, you can spot "trends" as well.

The paradox here is similar to that in economics. The macro trend will exert the most influence on the micro trend, however the macro trend will only change after the micro trend has done so.
Quoting Rastaman
I am simply mulling over the fact that, this is a 20 year+ trend and it is obviously a downward trend.
Looks flat to me.
Quoting Rastaman
I think you guys are misunderstanding the point here.

This is a chart from the beginning of FX trading (online anyway) to present day. It is over a 20 year time span.
How can it be wrong?

I am simply mulling over the fact that, this is a 20 year+ trend and it is obviously a downward trend.

Therefore, are we trading the trend or micro retraces in the trend?
I seriously busted up laughing after reading the first few posts. I do see what you are getting at Rastaman I guess it really just depends on the type of trader you. I mean a scalper doesn't care about the trend, much less the monthly trend from the 80s. On the other hand neither does a swing trader half of the time.

It really just comes down to the timeframe you trade in. Be it hour, four hour, daily, monthly, YEARLY, haha.
Before we call out any myths here, does anyone know how to identify a trend ? What is a trend ?

If it was that easy to look at any chart and say "the trend is up/down" a 6-year old kid could work as an trend-analyser. Unfortunately its not that easy. But not too far away.
Measure twice, cut once
I would say that a trend is an abstract, that (like virtually all chart patterns) looks most obvious in hindsight.

Most traders define a uptrend as a sequence higher highs and higher lows; a downtrend, vice versa. Of course it's debatable as to exactly what constitutes a high or low. You can attach (for example) the zigzag indicator on a chart, but then changing the parameters will have it select different highs and lows.

I think I recall Jacko saying that if price is higher on the RHS of the screen than the LHS, it's an uptrend, and vice versa. But of course this can change, depending on the level of 'zoom' (how many bars on the screen).

Price moves as waves within waves (yet another abstract). Hence it's possible for one wave to be trending upward, while the wave in a different fractal/cycle/timeframe is trending downward.

Despite the abstraction in the definition, IMHO the 'trend is definitely our friend'. Price movements in the direction of the prevailing trend (impulse moves) are longer than moves against the trend (retracement moves), and therefore offer higher probability of profitable trades. The trick is being able to determine the correct timeframe around which to base one's assessment, relative to the approximate length of move one is attempting to ride (e.g. scalping, swing trading, position trading, etc).

David
  • Post #9
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  • Edited 7:41am Oct 15, 2008 7:30am | Edited 7:41am
I guess one has to have a certain personality to get the point I am mulling over. Well, one person seems to get my point.

Of course I realize that the trend is time related and can look up on 5 or 15 min chart yet the other direction on a 30 min chart or longer.

It is this, and how it influences our psychology and decision making that I am contemplating in an attempt to get a handle on the big picture and even more importantly, my place in it.

Ok...Try this one.
In what time frame do people plot a trend? They plot it generally in the time frame they are trading with.
But, does this mean it is the trend? It could seem to be the trend but if we switch to a longer time frame it may also look like a retracement on the trend and not the trend itself.

This is probably what I am contemplating in the big picture where I choose to learn to trade and make my home.
Starting to see instead of just looking.
There's not much to talk about really.
All you need is a way (your way) to define the trend. Then apply it to your trading timeframe (and other timeframes too IF your system says so).
Trading = a mirror to your human flaws. Fix them or be fixed.
I get your point and it's a common problem with newer traders. The simple answer is to care about the trend on the chart from which you are trading. Unless you holding your trades for 4 or 5 years you really shouldn't care what the USDJPY was doing before you were born.

My advice is to define a trend as a series of higher highs and higher lows (up) or a series of lower highs and lower lows (down). At most, I would consult the trend of a chart 4-5 times higher than the one you are trading. For example, if you are trading from a 15 minute chart, I would suggest that you also look at the 60 minute chart.

You are absolutely correct that you can have counter-trends within a larger trend but that's OK. If you are trading a 15 minute trend down and the yearly trend is up you can still make your pips and get out long before the market comes back in line. Don't take in so much information that you are overwhelmed and can no longer make a decision. Look at a chart, find out which direction it is going, and try to participate in that move.

If you wait for every single chart to line up with trends you'll see about 1 trade every year or so.
  • Post #12
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  • Edited 9:34am Oct 15, 2008 8:17am | Edited 9:34am
This is how I understand and how I trade....

yes, trend is ur friend....But do u know how to identify them?? I will identify using trendline, Higher High, Higher Low etc...

Trend exists in every TF...It may show Down trend in Monthly but it may look bullish in D1 TF...

If u are in for scalping lik 5M/15M TF...that is ridiculous to get trend reference from Monthly...

so I will get the trend ref from the one or two TF higher...than the one that I am using to open trade..similar to what Dr. Alxander Elder stated in his "Trading for a Living" book...

If I use Sonic R. 15M, I will try to use H1 as my ref.
If I use Sonic Striker, I will use D1 or W1 as my ref...

That it...Hep it helps....

Sonic
IMHO trends only exist in the past. You cannot travel into the future and say "this trend will continue".
Every tick that comes in could be the highest or lowest for some time. You can only see what has happened in the past.Sure you can draw a trendline on your (historical) chart and say the trend is up or down, but you cannot draw that line into the future and say it will continue.

That's why it's such a challenge.

The only thing you can control is where you get in and where you get out. Simple really.
Polishing my crystal ball
I hear ya all people.

It is not that I am being overwhelmed, it is just a little mysterious even though I can generally jump on a trend movement at least once or twice a day. And this led to the thought that I may be somehow mistakenly trading the retracement. No big deal.

Thanks for the input.
Starting to see instead of just looking.
Quoting philmcgrew
I get your point and it's a common problem with newer traders. The simple answer is to care about the trend on the chart from which you are trading. Unless you holding your trades for 4 or 5 years you really shouldn't care what the USDJPY was doing before you were born.

My advice is to define a trend as a series of higher highs and higher lows (up) or a series of lower highs and lower lows (down). At most, I would consult the trend of a chart 4-5 times higher than the one you are trading. For example, if you are trading from a 15 minute chart, I would suggest that you also look at the 60 minute chart.

You are absolutely correct that you can have counter-trends within a larger trend but that's OK. If you are trading a 15 minute trend down and the yearly trend is up you can still make your pips and get out long before the market comes back in line. Don't take in so much information that you are overwhelmed and can no longer make a decision. Look at a chart, find out which direction it is going, and try to participate in that move.

If you wait for every single chart to line up with trends you'll see about 1 trade every year or so.
Good to see you posting again.

I think many misunderstand the concept of trends, not only how to spot it. When they learn to spot a trend, many think its enough to become instant millionaire, but I rather view it as a method to increase probabilities.

I remember some years ago when I did some research on why most of my trades turned out to be losers. I don't remember the exact % but trades taken against the main-trend (on daily basis), out-numbered other failures/mistakes by 2/3.

Btw, what you mention on multiplying the TF you're trading of by 4-5 is a good way to practice on trends and share similarity with the "famous" triple-screen method by A.Elder.

Chart of a downtrend on u/j since we talk about it;
Attached Image (click to enlarge)
Click to Enlarge Name: jp.gif Size: 24 KB
Measure twice, cut once
Quoting aediaz1
... but I rather view it as a method to increase probabilities.

Chart of a downtrend on u/j since we talk about it;
Agree 110%, it is not about right or wrong, but about improving the odds in your favor.

I look at that chart in my own way. What stands out is the steep fall, a typical wave iii impulse move - that is the larger trend in my view - when I can count 5 wave impulses.

Next it is followed by a 3 wave movement, which is countertrend, just a retracement, not a new trend. It is a wave iv.

Then more impulses cascade lower, I can count 9 waves, which is a 5 wave movement with an extension. It is beyond obvious to me even in real time. I would exit when the 9th wave hit my lower channel line, and step a side.

The next following time consuming pattern is a descending triangle a large wave 4 corrective movement, formed by 3 wave movements that retrace .618 to .786 of the previous wave, with 5 up/down total. It is a continuation pattern, that would break lower. I love trading triangles, the risk reward is high, and their features are an anchor for seeing where the market is going. The market here tells me a large 5th wave down is expected to complete this entire pattern.

Figuring the large trend is down and expected to go lower, allows my style to break determine the fractal patterns that make up the components of the whole. So I would move down in TF and apply the same method, I can go as low as a custom squeezed 1 minute chart with complete accuracy that would have the same distinguishing features. It takes training and experience, like reading music, to look beyond chaos and see the patterns that speak a wave language.

Bottom line: trend is always in 5 impulse waves, retracements are in 3 wave patterns or triangles.

Just my 2 cents.
You trade the trend on the timeframe that compliments your trading style.

There are trends within a trend, within a trend etc....

It is pointless trading a secular trend if you're a scalper and the 5 minute trend is not that of the monthly trend.
Quoting FXoffshore
............I look at that chart in my own way. What stands out is the steep fall, a typical wave iii impulse move - that is the larger trend in my view - when I can count 5 wave impulses.

Next it is followed by a 3 wave movement, which is countertrend, just a retracement, not a new trend. It is a wave iv.

Then more impulses cascade lower, I can count 9 waves, which is a 5 wave movement with an extension. It is beyond obvious to me even in real time. I would exit when the 9th wave hit my lower channel line, and step a side.

The next following time consuming pattern is a descending triangle a large wave 4 corrective movement, formed by 3 wave movements that retrace .618 to .786 of the previous wave, with 5 up/down total. It is a continuation pattern, that would break lower. I love trading triangles, the risk reward is high, and their features are an anchor for seeing where the market is going. The market here tells me a large 5th wave down is expected to complete this entire pattern.

Figuring the large trend is down and expected to go lower, allows my style to break determine the fractal patterns that make up the components of the whole. So I would move down in TF and apply the same method, I can go as low as a custom squeezed 1 minute chart with complete accuracy that would have the same distinguishing features. It takes training and experience, like reading music, to look beyond chaos and see the patterns that speak a wave language.

Bottom line: trend is always in 5 impulse waves, retracements are in 3 wave patterns or triangles. ............
Interesting, FXoffshore, sounds very similar to Elliott Wave theory, but with an adjusted wave count (if I understand correctly).

David
Quoting 30XTCi
IMHO trends only exist in the past. You cannot travel into the future and say "this trend will continue".
Every tick that comes in could be the highest or lowest for some time. You can only see what has happened in the past.Sure you can draw a trendline on your (historical) chart and say the trend is up or down, but you cannot draw that line into the future and say it will continue.

That's why it's such a challenge.

The only thing you can control is where you get in and where you get out. Simple really.
When you trade, you are always saying something like, "I bet this is where the market is going." Of course you never know for sure - or even close to that - but experience shows that if you sensibly follow a trend, you have a good chance of being right. There are many ways to define trends, and some good ones were mentioned in this thread. I'm surprised nobody talked about using moving averages: for example, you can use their slopes, or relation [above/below] to price.
You must understand how to use the correct tfs, according to the trend you identify. If you see one on a daily chart, don't expect price to immediately follow that trend as you enter.
Trend is an important component of a trading system, but there's more. For example, many traders buy the dips in an uptrend and sell the rallies in a downtrend.
Finally, MoneyManagement! Do you know ahead of time when you'll exit when you're right, and you're winning? And when you lose? These considerations close the cycle I started the post with, because those probabilities combined with the win/loss sums will determine your total expectation.
Yes David, it was Elliott rules being applied, to show reliably determine trend by impulse wave count, below:

Attached Image



FN - Even scalpers can benefit from going with the trend. It is like swimming up stream or down stream, which makes more progress? Scalping with trend allows a recovery from an entry where price puts you into the negative in the early stage, to moving into profit over time. Best scalps are with your back protected by a strong trend line or triangle, and going with the trend. You only lose when you got the trend wrong.
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