Help with Trend

I am wondering if I have picked a difficult time to learn the basics of trading.

My style is really resonating with Jackos teaching on trend and keeping things simple. Although its not quite so simple as showing the chart to my 3 year old daughter to determine which way it is going. Like the Euro hitting 1.6 and consolidating back to 1.4, will it continue its trend up or will the banks intervene and try to keep it down? I am staying out because I really don't know. I am looking at two other pairs on the daily chart, the GBP/USD and the USD/JPY. Both seem to have hit a peak (bottom) and reversed, but since I don't have the experience in analysis, how can I spot a true reversal rather than a correction?

What are the clues to a real reversal? Would it trend for awhile before it reverses?

Thank you for help!

I won't answer anything about what the euro will do but here is a chart showing how to kinda watch for the trend. This first chart is of a monthly usdjpy. it shows basic trend lines. The top line is showing a down trend. the bottom line is basically straight across. That is a trendline also cause it is connecting the 2 bottom points.

Here is another chart with the two red lines from the monthly chart on a weekly chart. This has been the trend since June of 2007.

Here is a daily chart with the trendlines from a monthly and weekly and now we added a trendline for the daily. This is since March of 2008.

Now look at the 1 hr chart. This looks like it is all uphill. It has been all up hill for a while now.

I just use higher highs and higher lows as an indication of an uptrend and lower lows and lower highs as an indication of a downtrend.

Higher lows but lower highs is an uptrend that's hitting some kind of resistance, figure that out and see if there's a pattern. If the distance between highs is decreasing it's also a sign of a slowing uptrend, it could pick back up or it could reverse. The inverse is true of downtrends, lower highs is still a downtrend but if the lows aren't making new lows then you're hitting support and if the distance between lows is slowing down then the same goes... tighten stops and be cautious.

Trendlines are tools for this, draw uptrendlines on the lows and downtrendlines on the highs. If a bar closes on the opposite side of the trendline it could be a sign (altho ppl draw them differently so it might mean nothing), combined with the failure to make a new high/low and you've got a short-term reversal. It usually retraces to a larger rest level before deciding. Long-term reversals are usually met with a large exhaustion move or a consolidation period. If you study the common chart patterns you'll see this in action.

Identify the "top" or "bottom" that's defining the current move and you'll be able to pick the general direction of the pair. Don't trade against that direction unless you really know what you're doing. Typically prices will back to a "rest level" before moving on... I use moving averages (the 21 EMA typically) to determine that rest level. I never take a trade that's too far from it's rest level, the edge isn't there.

The EURUSD and the GBPUSD are both pairs I'm not trading right now. Neither look good, the eurusd is in la-la-land, completely undefined... it could reverse or it could go forever. Take the trade if you want, the pair has a down trend to it, but that could reverse at any time. The sterling is in consolidation after breaking below the 365SMA, it's not trending so trend strategies are useless.

The USDJPY is in an uptrend, it just broke the 100EMA and is retracing back. This could be the end of the trend, I wouldn't trade that either IMO, not until it bounces off it's rest. You'll notice the exhaustion move at 97, followed by a broken H&S and a failed double top. A clear sign of an uptrend that everyone tried to force down and failed.

Now, what needs to be done is, look at the longer term charts first. Look at the major trend. Have your lines made from point to point and only look for trades off those lines. A week ago, a person could have been looking at the yellow line to make trades off that to go long. Now as time progresses, price is making its way up to the blue line. Now isn't the best time to try to take a long off the yellow line. Maybe wait for an indication to go short off the blue line. BUT BUT BUT, if there is not indication off the blue line, extend the yellow line into the future and take longs off that towards the red line. Once price gets to the red line, look for longs. Once there are 2 points made, you can make your straight line and start trading off that in the direction of your line. The question is, what time frame are you using? How long do you want to hold a position?

I would say always look at the longer time frames for "areas" to keep an eye open.

For example, and it's not pointed out on the charts posted above.....take a look at EUR/USD 1.59, 1.54, and 1.49-1.5.....

These are all areas I would watch. The only problem I have with trend lines is that they tend to discount SIDEWAYS S/R....which seems to me to be just as, if not more important than a trend line....

If you get both at a point, and some confirming price action......jump all over it. I would highly recommend the James16 chart thread. Read all 16 billion pages, because quite frankly, it's worth it.

Good luck mate....I remember what that was like. Confusion reigns in the beginning. However, I would point out that you are already showing signs of a good trader - you are staying out when you don't understand what's going on. That's huge, and will save/make you money later. Never forget this time.

Clockwork

The man shows the answer here

http://www.forexfactory.com/showpost...50&postcount=4

I would suggest you settle in on a time frame to trade then experiment with trend indicators you are comfortable with. On the attached chart, the purple line is my weekly 2-Bar(Main Trend Indicator).




As far as reversals are concerns, I am guessing you mean a closing price reversal. I define a closing price reversal as this:

Following a prolonged move in terms of price and time, a reversal top is formed when the market makes a higher high than the previous bar, a lower close, a close below the opening and a close below 50% of that bars range. The key is the follow through break on the very next bar.

A reversal bottom is as follows: Following a prolonged move in terms of price and time, a reversal bottom is formed when the market makes a lower low than the previous bar, a higher close, a close above the opening, and a close above 50% of that bars range. A follow through rally is also necessary on the very next bar.

I have been trading and analyzing since 1982. I am an old school chart analyst. One thing that is very important is to learn the characteristics of the Forex pair you want to trade. Always analyze it in terms of price and time. You have to get away from the canned indicators that come with most trading platforms and keep records of how a market moves at various times during the 24-hour session. Once you build a good database of price and time tendencies, your trading is likely to improve.

If you are going to trade the trend, you have to know at a minimum the average duration of the pair in terms of price and time. Once you can master the trend, then move on to combining the trend with support/resistance and counter-trend movement.

The beauty part of the Forex market is the length of the trends. They trade like the futures did in the 70's and early 80's.

From the fundamental side, you should have a chart of the interest rate differential of the pair you want to trade. For example in the Euro, you should have a chart on the spread between the ECB Rate and the Fed Funds rate and a chart on the Spread between the Bund and the Bond. Watch for tightening and widening of this spread to give you a clue as to the direction of the EURUSD.

As a rookie, you don't have to learn by losing money. You have to be prepared because you are going against the biggest and the best traders in the world. At a minimum have the same tools they have before trading. Don't give away your money.

Brilliant! Thank you so much for all of your very wise instruction.

My ideal is to trade off the daily chart, however my emotions like to jump in an intervene at the hourly level so I try my darnest to close the laptop and ignore the noise. Sometimes I do better than others. I also enjoy the added interest of carry trades so I strive to hold positions for a few days (well, the ones with a positive rate)

I am reading about Jesse Livermore and how he had an office away from the wall street hub-bub so he wouldn't be swayed by the buzz - and I sympathize because all this talk about recessions, inflation, recovery, and whatnot cause me to doubt what I see on my chart in relation to the trend.

The USD/JPY's uptrend in the daily chart against the downtrend in the weekly and monthly was really throwing me for a loop. If I go long am I trading with the trend or against it? I went long a week or so ago and lost a much bigger chunk that I was comfortable with (good to know! 100 pip loss is too much for my stomach!) and blamed it on going against the trend. But then it goes back up to 105.

I am going to go back over all the posts and study what has been said so far. I also am going to jump into the james16 chart thread. I have been resisting it for whatever reason. Further - I love the suggestion on the interest rates and price spreadsheet.

Lots of work to do! Thank you again.

IMO there are a billion reasons not to trade, if you start looking for reasons to not take the trade you'll find as many as you need. If you're worried about the loss you should lower your lot size, a 100 pip stop loss is typical for daily trading (depending on volatility and where you enter), so make sure you can handle a loss of that magnitude w/o worries.

Whatever trend is in your timeframe is usually the most relevant. The weekly might influence it, it might not. Fundes have changed since that trendline was formed. If you move to BE quickly then trail your stop loss at the end of each day you'll survive a bounce off the trend line, even if it happens.

A simple definition for the tren has been covered by charles dow; as long as prices makes a higher high and a higher low the trend is up and if prices makes a lower high followed by a lower low, the trend is down.

And this rule has been the engine of my trading strategy. Btw i trade intraday ticks and i use this very anology for my trades.

My main indicator is basically trendlines and SR points. How do i use my trendlines? If you have read trader vic the method requires you to draw a line below the lowest low that preceded the highest high.

What do i use my trendlines for?
To look for inflection points, signs showing price is weak.

Do i trade trendline break?
No. Even afer the trendline breaks, there is still a chance that price may rally to a higher high, this will require me to update my trendline. I trade the 1-2-3 setup after the break of a trendline, sometimes i dun wait for the number 3 confirmation, when my guts tell me that a double top or a lower high might form after the TL break, i'd short the bugger at the highest point possible.

Does any of the above work all the time?
No the don't. Its the market, she has her periods.

AS a newbie you cannot begin your forex life any better than following the trend . You are going to be the 1% that never blew their first account

The candlestick is a great indicator of potential trend reversal. Pin bars or engulfing twins candlesticks show that trend movements are losing their momentum. It could be a potential reversal signal.