Trend identification and trend change spotting

Hi,
i'm little confusing how far back I must looking for spotting a trend direction for example on H1 chart? Some people say 5 days, other 3 days back... your opinion? Becouse if I look a 5 days back the direction may be up, but if I unzoom the chart then this up may be a little correction from down trend... so if you trade on 15m. and you have to spott the trend from H1 how far back you looking for trend direction?
For example this is two pics of one chart, both on H1, just one is zoomed, other arn't on the zoomed chart we see up trend, on unzoomed is clear down...

Dimkata, my reading is that the H1 chart of USDJPY is not displaying a clear trend in either direction and spent Friday, Aug 16 trading in a tight congestion range. Once price breaks out of this range we may be in a better position to detect the next trend direction.

You need to trade what you see.

Different trends appear on different timeframes, sometimes they align and sometimes they dont.

You must take all you see into account, a long term trend on a daily chart will tell you whats been happening over the days displayed. If you then step down to the hourly you may see a trend that is counter to the daily.

You and your strategy must then decide how to trade this information. One thought might be that as the daily trend has been going longer it is the dominant trend and so price is expected to follow this in the longer term. So with the hourly trend in contradiction, you might want to wait for this to stop trending in this direction and then fall in line with the daily trend. You may even drop down to the 15 min chart and look for entries that will get you in to the daily trend.

But as always, past perfromance is no guarantee of the future. And the hourly trend discussed above may turn out to be the new beginning of a new daily trend in the opposite direction.

Welcome to the world of trend trading.

Unfortunately there is no clear answer to this one, the best discription i ever heard was 'zoom out all the way, stand at the back of the room and ask a 5year old'

At the end of the day you have to trade your system according to the rules it was built on, there are a number of good threads on trend lines and this one about trend direction http://www.forexfactory.com/showthread.php?t=227948.

good luck with it, after time you will start to get, but i wouldn't get to carried away on trend lines, S&R lines are more likely to play a role.

regards

MPP

I would suggest forgetting the idea of some 'look back' time like 3 or 5 days, it really has little meaning as trends can develop quickly or very slowly. Also bear in mind that on different time scales you will often see trends in opposing directions as you have in your example.

Looking at your zoomed out chart you can see that the price had been in the upswing phase of a clear down trend. It has now possibly ended and the price could likely be rolling over into the next down swing of the down trend. As Invicta has said it will become clearer once the range has broken.

Zooming in, that upswing was a clear up trend in it's own right and could be traded as such.

If you want to be a purist you can look for the traditional higher lows or lower highs but with experience you will find if it looks like a trend then it probably is!

So, identify if there is a 'trend of the moment', zoom out to put it in context and if it meets your entry criteria - trade it.

Like you I was extremely confused when people were talking about THE trend; for the same reasons as yours. An up trend is defined by higher highs and highers lows. Ok. But what shall you consider a high? That's very confusing as there are numerous little and bigger turning points on the charts.

Actually THE trend has little to do with the PA but much more about yourself and your trading method(s). More precisly your trading horizon: the average time you expect a good trade to be running.

Have a look at the center of your first chart. Clearly there is a straight move. Would you consider this a swing or a trend? It's both. Depends on you. Now have a look at the very beginning of the first chart, from the left border to the start of the up going arrow. Would you consider this is a down trend made of lower highs/lower lows or just a choppy swing?

Think in terms of your method. In hindsight, looking at this move would you like you had open any trade long? a short? two shorts? three shorts? nothing at all?

Looking at the second chart, but no what the price made since, would you like you had open a trade
- near the double bottom, still in the trade waiting to reach the down going arrow (or even above)?
- near the double bottom, but closed at the turning point high?
- do you consider the double bottom is a range you could have traded?

Let's say NOW is the latest candle on the screenshot
- would you consider entering short to reach the bottom of the congestion highlighted by invicta?
- would you consider entering short to reach the double bottom or further, neglecting this little congestion?
- if you think the price may go higher up to the down going arrow, would you go long to reach it or would you wait the price goes there then try and short it? According to your method would you consider this long would be a in-trend, a counter-trend or a mistake?

Only you can answer these questions. This will give you an idea of what you will consider a pair of swings forming a high/low and what is a small glitch you disregard.

I agree with Davidb's observation that trends can be in opposing directions on different timeframes, which is why I rarely draw trend lines. They always look so accurate on historic charts but can be misleading on live charts.

I prefer to stick with the rule that an uptrend is indicated by higher highs and higher lows, as stated by PipMeUp. A downtrend is indicated by lower highs and lower lows. An area of congestion is indicated by lower highs and higher lows. An end to congestion is often indicated by an expansion of the area with a higher high and a lower low.

The attached chart is an update of my previous H1 chart of USDJPY and shows how these rules could have been applied this morning. Of course these rules are far more accurate on the higher timeframes, which is why I always trade on the daily timeframe.

Thank you everyone!
So, the main thing it seems to be- according wich system you use to trade, and with your system you may decision to trade with more zoomed chart (and direction with the zoomed chart), or if the system is more.. patience- then you shoud choice to unzoom the chart and view a bigger picture where you are.

Identifying trend change is just damn too easy. Dimkata, everything you need is on the first chart. Clue: it starts with a head and shoulders formation.