Let's talk about trends I'm confused

Let's start out with what I think I understand and go from there. I know you should never go against the tend. But how do you figure what the trend is. Example of my confussion.

The GBP/USD shows on the 1 Month 5 year a downtrend in my view.

The Weekly 3 year show down also in my opinion.

The daily 3 Year shows an uptrend in my opinion
and so does the hourly and 30 mins (time here is 15:34 MST)

So what do I go by to detemine the overall trend to help me base my decission whether to go long or short? I so confussed



Thanks

Fdisk

dont get to caught up with all this trend is your friend stuff. if you are a very cautious trader when trading the daily take a look at the weekly and follow that trend. if you are trading a 60 min or a 30 min check the daily. if you are trading any time frame less than that what really matters is do you know what you are doing. with the trend or not on smaller time frames you better have some experience. this of course is just my opinion. jim

Confusion about trend is a completely normal condition. Here are some de-confusers:

1. Trend direction is relative. Trend direction is not fixed to some external reference.
2. Trend direction is always relative to another time frame. (if you are trading the 5min chart you'll probably use the 30 min or 1 hr to determine trend. If you trade the 1hr or 4 hr you may use the daily. For the larger picture trend the weekly is always a good reference.
3. If you did not reference another time frame for trend direction you could not find a trend that was "going against the trend". One trends direction will always be relative to another.
4. Some people distinguish "market direction" from "trend" as two different things.
5. Ultimately you must find a trend definition that suits you, your trading style and your beliefs. A trend definition will tell you when a trend begins and ends and what direction (up down or sideways) it is going. You create the rules for a trend that work for you.
6. Trends don't like to fit into nice little definitions. They like to do things that defy definition. Did it reverse or didn't it? Sometimes you find yourself adapting your definition of trend as a pattern of refersal or continuation you didn't think of before emerges.
7. You should always be aware of at least two trends. The trend you are trading and the larger trend you are using for trend direction. Once you get your two main trends and how they work together understood you can work additional information in later. That is the key to keeping it simple. I have used 4 hr trend for trading the hourly chart effectively. I have also used the 30 minute to trade the 5 minute quite effectively. If I trade 5 minute (which I almost never do) I don't normally trade against the 30 minute. If I trade the 1 hour I don't usually trade against the 4 hr. Etc.
8. Since all systems other than arbitrage and option play systems are really trend following systems you need to know when a trend begins for your entry and when trend ends for your exit.
9. Knowing when a trend is over is more difficult than knowing when it begins and often the definitions are different. However the simplest trend definitions use the same criteria for beginning as for ending only reversed. If price crosses the 1 hr 25 ma you have the beginning of a possible trend and if price crosses the other way you have the end of that trend.
10. Since your definition for the beginning of a trend may occur 50 times and reverse 50 times in 20 minutes time you generally want a confirmation of the trend beginning or ending. An example would be "when the 5 minute bar closes above the 25 ma -- the trend is confirmed" or: "when the 5 minute bar opens and closes above the 25 ma the trend is confirmed." The list of possible definitions is endless.
11. Trend definitions always trade early entry off for greater confirmation. If your trend definition has weak confirmations you'll get in more trades but they won't be as reliable. If your confirmations are too onerous you'll miss some good trades as well as a lot of bad trades. Always a balancing act.
12. There is probably more controversy about trends than any other topic in trading. Don't sweat the controversy. Every different perspective about trend has good information in it. But don't get bogged down in information overload. Remember that the objective is to find something simple that works most of the time. It is much easier to define a trend than it is to trust your definition once you are in a trade. Most mistakes are made by second guessing your definition of trend and exiting too soon (before the trend is over) or not exiting even though your signals tell you the trend has reversed on you.

FT

Wow thank you Fujitrader. Information overload. It'll take me awhile to digest it all.


Ok so to determine the trend if i were trading the 5 min chart I would go 2 charts higher atleast to the 30 min chart and see which direction that is going and if the EMA lines cross going in that direction that could be a good trade. But is the EMA lines cross going the other direction don't get in. Right????

i concur

the trend is not my friend.

trend following was in vogue in the 60's, and continued on through the 80's, and there is still a lot of liturature around that is based on the market conditions of those times. i dont think you can make money with simple MA crosses anymore. you have to go beyond that if you want to trade the trend. im no expert on trend trading (just saying "trend trading" makes me think of that infomercial) so i dont know which systems will work well to catch trends. but one thing i do know is that you can make money trading against the trend. ever heard of turtle soup?

If it seems like too much information then it has already become too complicated and I goofed by posting so many ideas about trend. Even though I said a lot there it all is pretty much saying the same thing different ways.

I agree with james and merlin. Don't get too caught up in this trend thing. And whatever you do keep it simple. Probably the most complete system documented on this forum right now is MB's thread. Set that system up on your charts and work with it until you understand how it works. It already answers all your questions about trends but without having to get into trend definitions etc. It is already included in the way he presents his system.

Mostly the issue with understanding the market is staying away from bad trades. So if the larger charts are going one way and the smaller charts are going another way the idea is to understand if that might get you into a bad trade. There are no clear cut answers. It is simply a way of looking at the market to understand when you might want to avoid a trade.

FT

But really Merlin when you place a trade that goes in a direction it is a trend or counter trend -- which is just another way of saying trend by relating it to something else. The very fact that you mention "trading against the trend" seems to me only to be semantics. You are still talking about trend definition if you are going to trade against the trend. How can you trade against something called a trend if you don't have some sort of definition that identifies the trend you are trading against?

FT

FT,

It seems to me that you can make money by betting that a trend won't develop.

Pull up the one hour chart on GBP/JPY for Thursday and Friday. I made some money by betting that pair had no reason to break out of the channel on Friday.

When I think of trend trading, I think of trying to identify a trend and then jumping on board and riding that trend until the market direction changes. It seems like a fundamentally different approach to me to place a trade based only on the idea that the price (whatever else it does) will stay between level x and level y. Not sure what the term is for that, but I think of it as "support and resistance" trading.

Isn't that different than trend trading?

James

"The trend is your friend" ... I think of it as "go with the flow".

"Trend" is the same as "market direction" (correct me if I'm wrong).
Wouldn't it be safer to open a trade in the same direction.


Redleg,

I've tried trading using support-&-resistance, but haven't had much luck. How do you find your support and resistance levels?


I think i's called Range Trading.

well, yes, i would need a definition for trend before i can trade against it:o

trends are defined by breakouts in my philosophy. if the market is making a new high (whether it be a 5 minute high or a 5 year high), it is trending up and vicaversa.

Habeeb,

If you use CMS VT charts there is an indicator... maybe two that automatically displays S/R

Lou

The best source that I have found is a signal service that is based on support and resistance levels - Stormy Forex. Signal services are not for everyone, but I have very little time to devote to trading right now and this one has been working out for me so far.

Stormy describes his methodology on his website ... he basically projects weekly support and resistance levels for several currency pairs at the beginning of the week, then sends daily emails with set and forget trades based on those levels. All of the potential trades with multiple exit points are listed on his website at the beginning of the week, and he selects from those based on his TA for the daily set-and-forget trades. All trades are closed Friday morning. He updates his projections for the week on Sunday afternoon.

If you plot all of his projected levels, they are usually significant in that week's market action. His entries are amazingly good ... this was a losing week on his system, yet 6 of 7 trades were positive at some point, most for 20 or 30 pips, and one for 70 pips. If I had the time to constantly manage my exits I think I could do significantly better than the official results.

Screenshot of the trade from Friday is attached. The yellow arrow is the entry (typical of the good entries Stormy's system generates) and the blue arrow is where I closed the trade. The system put me in this trade on Thursday, but I like to try and manage where I close the trades on Friday morning .... every time I've had a chance to do this I've beat the official results for those trades. I checked the trades during a break at work, and my thinking was basically like this:

- The trading range over the past two days is obvious ... just look.
- The asian trading session is already closed ... the japanese aren't going to move this pair out of the trading range.
- All news events for the week are over .... news is not going to move this pair out of the trading range.
- GBPUSD shrugged off the US Trade data, and is mulling around doing nothing.
- Ditto on USDJPY
- Nothing in the shape of the candles or the market actions suggests this pair will break out of the range.
- The price is at the bottom of the range now ... close while the closing is good!

The official results from Stormy for that trade was +20. I exited with +50!

Take everything I say with a grain of salt ... I love this forex stuff, but I'm as inexperienced as anyone else here.

James

You actually get an indicator for S/R ... WOW.
Thanx Lou

Thanx to you too, Redleg. I'll check out Stormy's website.

That's really very important information for new traders like us.

As a dedicated "trend follower" I'm the most confused of all.

there are many trends (the M15, D1, monthly...), multiple ways to identify them (MAs and other indis, breakouts etc, etc...), multiple ways to exploit them (tps, trail stops, tight stops, wide stops, pullbacks, stop orders, market orders, pyramiding, long term...)

basically, "trend following" means NOTHING particular. it's a bunch of trading styles

You need to identify first what type of trader you are. Are you going to be holding your positions for weeks, months, or years? Or are you a day-trader who wants to close all of your trades before market close each day?

This is an important distinction to make before looking at trends. Because a long term trend is irrelevant to a day trader for the most part.