MrRenev
Education

The 3 types of trend

FX:EURUSD   Euro / U.S. Dollar
Summary
  • Introduction
  • Type 1
  • Type 2
  • Type 3
  • Conclusion

Introduction

Trends are not created equal, there are 3 types of trends, I am not a trend trader that much but I can identify trends and tell the difference.
This is what I know about myself:




1- Strong trends

Examples:


Ways to define these strong trends

- Eyesight

- With a momentum indicator (not a fan)




- With a trendline




- With moving averages




As you can see, there are not many pullbacks with this type of trend - once it pullsback it is a reversal often, so how best to participate in this?











2- Medium trends

Not going as much in detail here, don't care so much. Plus you get the idea anyway.
Medium trends are not as awesome, they get quite choppy. Just not as good to participate in, in my opinion.

Examples:






Same ways to define it, but trendlines have smaller angles, RSI not as high, and use EMA 50 rather than 20.

Ideas to trade, similar with 1 big exception:





3- Weak trends

Ooooh what's that smell?



I could trade it like a consolidation with a bear bias (only go short) in a downtrend?
NO! In this EURUSD example you can see tops go lower, then higher, then lower.
It is not clear, super choppy. The price is generally going down, but there are no good entries.
Unless you do not mind a risk reward of 1 while trading a daily chart ...
The thing that makes holding weeks > get in and out is you can get high risk rewards,
cumulate uncorrelated positions (which reduces overall risk), hence increase your profit without having more risk..


(Bonus) The "I am going to zero" trend






Summing up:



About the 3/5 group of strategies I have posted:
1/5 (The 4 kinds of bottoms) = Supply & Demand
2/5 (Buying pullbacks style) = Trend following / Troll strategies
3/5 (Trend continuation breaks) = (Strong) Trend following
Comment: Any chart I look at anyway I think about it, if a trader:
- IS PATIENT
- HAS A TIGHT STOP
- RUNS HIS WINNER

It is literally IMPOSSIBLE not to make money. I do not see HOW someone could not make money... Even if I tried I could not.

Talking about strong trending environments (only) here.
Strong supply demand imbalance. Think 2017 crypto bubble.
They don't happen that often.

Over 90% of people are simply not able to be patient, or do not get out when it goes against them, or they have irrational bias and are very bullish on something that is not strongly trending...

Trading in these conditions is really not complicated.

Having trouble? Scale down on the size. Trade small, until there is a strong trend, and then put most of your focus on that trending market.

This is the kind of trends that can make your month/quarter:


And those are the ones that make your year:


If you cannot make it work with anything else, you have this.
you won't be making great returns all the time, you won't be making 75% a year like soros, but you will get a few great winners that make you profitable in the long run.

I also think it is a good idea to be diversified so it goes against this...
Maybe a compromise? And don't go so big that if something crazy happens and it goes to zero you owe money to the broker.
"When the majority of people extrapolate the past in a bull cycle and expect the future to be the same, they usually are right and we are pretty early in the cycle"
- Warren Dalio
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