There is a famous saying in the world of trading: trend is your friend until it tends to bend. Following the mighty trend and riding its impulsive moves is one of the most satisfying feelings out there. There are several ways of identifying a trend and hoping on it. One group of people favours using indicators such as SMAs or EMAs for this case. Another group of traders prefers sticking with price action and technical analysis.
In this educational idea, we are gonna show two techniques that can be utilised for determining a trend looking at multiple timeframes and examining various factors.
First of all, for identifying a trend, we filter out all small timeframes and stick with the big ones like the Monthly, Weekly, Daily. STF graphs are filled with noise and indecision. Whereas, HTF charts show the bigger picture and make it easier for us to predict where the price is headed. Second, as we know, the market has three phases: uptrend (bull market), downtrend (bear market), range (kangaroo market).
As long as the price keeps printing Higher Low and Higher High points, the market is in a bullish phase. Vice versa, if Lower Lows and Lower Highs are being formed, it signifies that bears are in control. Another method that we could utilise to determine a trend is by using line charts instead of candlesticks. Due to the fact that a line chart filters out all the noise, we get a clear picture of the ongoing trend.
On the other hand, Differing from an actual trend, ranging markets are associated with indecision, choppiness, and imbalance. Such "kangaroo" markets are formed when bulls and bears fight each other over direction. This traps the price within borders of a sideways-moving rectangular range.
All in all, even though the process looks simple, it can get tricky and confusing from time to time. Therefore, always and always, stick to the plan, be risk tolerant, remain disciplined and patient.