When retracement has become a trend change? | Forex Factory

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When retracement has become a trend change?

  • #1
  • First Post: Jun 10, 2012 6:13am Jun 10, 2012 6:13am
How to determine when a retracement has become a change in trend?
  • #2
  • Jun 14, 2012 8:46am Jun 14, 2012 8:46am
very hard to establish this. only through many hours of backtesting you can hope to find a statistical solution for this. try backtesting a close outside the 50% retracement. there is also a theory that states that anything that crosses the 78.6 signals that the previsious trend is over.
  • #3
  • Jun 15, 2012 10:27am Jun 15, 2012 10:27am
I watch swing highs and swing lows. If correction (in a uptrend) breaks a previous swing low then I pay attention. Higher timeframes are also very important.
  • #4
  • Jun 18, 2012 3:26am Jun 18, 2012 3:26am
Quoting trexy123
How to determine when a retracement has become a change in trend?
That is an excellent question

A lot of people ask useless questions and wonder why they don't get anywhere in their trading career.
  • #5
  • Jun 18, 2012 5:27am Jun 18, 2012 5:27am
Trendline break? It's simple, it's visual, depends neither on timeframes nor indicators.

Quoting trexy123
How to determine when a retracement has become a change in trend?
forget about tomorrow, just steal away into the night
  • #6
  • Jun 18, 2012 5:29am Jun 18, 2012 5:29am
Every trend starts with a retracement but not every retracement starts a trend.
  • #7
  • Jun 19, 2012 11:13am Jun 19, 2012 11:13am
Quoting trexy123
How to determine when a retracement has become a change in trend?
Statistics. Unless you have pandoras box (the only box i have is in my business and it has bills inside )

It may well be rooted in someones definition of a trend. In a way like a "mirrored-effect".

It probably sounds naive, but, if my definition of a trend is "xyz"...i get in...and i see a retracement that takes the form of "xyz", then that to me is essentially the begining of a trend (in the opposite direction).

However if i get in when "xyz" happens, and any and all sucesive retracements do not fulfill my "xyz" requirement, then it is not a trend change but simply another retracement taking place.

Below is a crap picture i drew to get my point across:

Trend = cross above/below red+blue ma.

And my "lagged-trend-filter" = long only above green // short only below green.

Then any time i get my "xyz" (red+blue cross) it is a trend.

Anytime i get an "xyz" (red+blue cross) it is a trend (in the opposite direction).

Since i cannot predict i cannot know if this 'change' will truly take place, it could well be a minor (counter) trend that develops into a reversal.

But common sense tells me that if i enter a building with only one entry i must exit the same way i entered

Unfortunately, most building have multiple entry and exit doors.
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  • #8
  • Jun 21, 2012 11:30am Jun 21, 2012 11:30am
Anyone else? I can't believe everybody here is a range trader. Nobody trades trends anymore?
forget about tomorrow, just steal away into the night
  • #9
  • Jun 21, 2012 12:51pm Jun 21, 2012 12:51pm
Quoting spekitox
Nobody trades trends anymore?
what's that?
  • #10
  • Jun 21, 2012 1:04pm Jun 21, 2012 1:04pm
after a few years of learning, i've learned i have absolutely no idea what actually the trend is.
big numbers are our friends...
  • #11
  • Jun 21, 2012 1:44pm Jun 21, 2012 1:44pm
Just like EmeraldEyes said
"Every trend starts with a retracement but not every retracement starts a trend".


A picture is worth a 1000 words
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  • #12
  • Jun 21, 2012 6:52pm Jun 21, 2012 6:52pm
Another example, but in real time, with no comments.
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  • #13
  • Jun 21, 2012 6:53pm Jun 21, 2012 6:53pm
And with comments.
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  • #14
  • Jun 22, 2012 9:58am Jun 22, 2012 9:58am
Some few reasons:

- intervention
- news
- sentiment impact
- strict inventory shifting: (globally in different markets)
- correlation and hedging issues/imbalances
- expiration impacts

All these points can be combined.
  • #15
  • Jun 23, 2012 12:54am Jun 23, 2012 12:54am
When the market forms a trading range of distribution after selling.
When the latest point of support is taken out by the retracement. ( It means the market is very weak because it can't go above the support now resistance) Normally in the range of distribution you see a new low and the market is not able to make new highs. Is the path of the last resistance. A weak rally and the liquidation leg starts. Or panic selling.
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  • #16
  • Jun 23, 2012 3:13am Jun 23, 2012 3:13am
great question. I personally have a couple criteria that I screen through to determine this, most technical, but some sentiment and even some fundamental.

However, i'm not going to go into this on any great level, because it took me years to figure out, and it's one of the few things that I've never seen anywhere else. Just know there are a few things that one can look for on a daily chart, that will provide a high probability (say.... 75%+) of knowing whether the move that just occured is a new trend, or just a retracement.

For the record, i've recently seen such a chart "pattern" develop on the USD/JPY.... I believe we'll see 83.20 again before we see 78.30. I wasn't able to make this determination until we hit about 80.00, but since we have, I'd say this is a pretty good chance of doing 83.20, and even 84.20, before we see 78.30 again.

someone mentioned market symmetry, and this definately is part of the equation... as are just good ol' trendline breaks.

You would be wise to look at longer TF's as well, weekly, and monthly, because if you see a bullish engulfing on a monthly after a long drop into monthly support... well, good bet we go higher for at least the next month or two...

and lastly, learn about the COT report. it won't tell you WHEN a turn will come...but it will tell you when a big turn is very likely setting up, AND give you some insights into the magnitude of such trend reversal.

when you have this as a frame of reference, it's as well as what else i've listed, and some very hard work of your own at what happens to price at previous trend changes... you'll have everything you need to answer that question.
  • #17
  • Jun 23, 2012 4:22am Jun 23, 2012 4:22am
Whatever you use it will work sometimes and fail sometimes....

Whatever you decide to use, use only that and stay consistent....

It doesn't matter if you're wrong from time to time...

Make sure your win rate and RR ratio means you will over time make money...

I use 50sma... simple.
tradewith60
  • #18
  • Jun 23, 2012 4:47am Jun 23, 2012 4:47am
Quoting 60minuteman
Whatever you use it will work sometimes and fail sometimes....

Whatever you decide to use, use only that and stay consistent....

It doesn't matter if you're wrong from time to time...

Make sure your win rate and RR ratio means you will over time make money...

I use 50sma... simple.
For some, that isn't enough. I know it wasn't for me, and I continued to discover new knowledge and information until I found a way to determine with an extremely high probability how to notice a trend change from a simple retracement.

my entire approach to the markets is also about picking tops and bottoms. I rarely wait for much confirmation, and many times don't wait for any at all. So for me, knowing the difference was very important.

like all things, it depends on who you are and what you personally need. I'm glad the 50 SMA works for you, but I think the OP was inquiring as to what to look for that will give a higher probability of success (and possibly an earlier signal) than something like a 50 SMA.
  • #19
  • Jun 23, 2012 5:11am Jun 23, 2012 5:11am
Quoting forextraderx
For some, that isn't enough. I know it wasn't for me, and I continued to discover new knowledge and information until I found a way to determine with an extremely high probability how to notice a trend change from a simple retracement.

my entire approach to the markets is also about picking tops and bottoms. I rarely wait for much confirmation, and many times don't wait for any at all. So for me, knowing the difference was very important.

like all things, it depends on who you are and what you personally need. I'm glad the 50 SMA works for you,...
maybe... but the biggest trap traders falling into is believing they need higher probability.... everyone wants 70% win rate, whereas sometimes 50% with higher 2/1 R/R is easier to achieve and more profitable..

Lose -1%, Lose -1%, break even 0%, win +3%.... Low probability.... Profit....

Its how i think, it's completely removed the stress from my trading and I make consistent profits... focussing on winning is a sure way to lose...

Personal opinion and of course, both ways can and do work.... just don't get so many things confirming that you have confusion and inconsistency..
tradewith60
  • #20
  • Jun 23, 2012 7:05am Jun 23, 2012 7:05am
Quoting 60minuteman
maybe... but the biggest trap traders falling into is believing they need higher probability.... everyone wants 70% win rate, whereas sometimes 50% with higher 2/1 R/R is easier to achieve and more profitable..

Lose -1%, Lose -1%, break even 0%, win +3%.... Low probability.... Profit....

Its how i think, it's completely removed the stress from my trading and I make consistent profits... focussing on winning is a sure way to lose...

Personal opinion and of course, both ways can and do work.... just don't get so many things confirming that you...
no, your totally right here. no doubt. i'm just saying for ME... i am psychologically uncomfortable with anything less than a 60% win rate, aiming for at least a 1:1 RR.

it's hard for me to keep "stress free" if i don't have at least this, and a 1:1 or better RR (none of this risk 100 to make 10 pips nonsense)

I also absolutely hate drawdown. even open trade drawdown.

most of my winning trades never move against me more than 30 pips at any time before hitting targets between 30 pips, and 100+ pips.

again, a very personal thing...but I like to catch market turning points, and I like to know what really is likely to happen next.

and if i can't stay stress free, i make bad trading decisions. it's a very personal thing...but, nevertheless, it forced me to seek out higher probability situations... and to discover what clues i could find that would tell me when a trend may change just as it was starting to do so.

as a result, I did find some very telling clues that do in fact give good warning of a future trend change. and not one that will be a "false" trend change...but, one that a person can objectively say

"ok, now that we are 175 pips off the low, and we've crossed this threshhold in this manner, without doing this or that.... I can say with 75% - 80% certainty that we will move up another 300-500 pips at least before we start to move down and revisit these lows."

I know...i'm really a mental pussy. i couldn't hack it with any less. i'm just too unstable. but... again, i found a way to make it work for me.

of course, that's the REAL secret to it all... find that answer, and the rest doesn't even matter.

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