As you have probably already read, I love trends; but what happens when a trend turns. No matter what time period you trade your trend will eventually turn. It is essential to the well being of your successful long term trading life that you can recognize the beginning of a trend turn.
The first sign of a trend turn usually come in the form of a candlestick reversal formation. Then you will eventually get a trendline break. That is why it is essential that you learn to read candlesticks like a master musician learns to read sheet music.
Things you want to look for in a valid trend turn are:
1. Price that has really been in a trend for a while, and a valid candlestick reversal signal). (Except on a smaller time frame, those trends can change rapidly) 2. A treadline break is usually a good sign. On the trendline break, be sure to wait for the candle to close. If it closes outside of the line you may want to confirm the validity of the breakout with an indicator such as a MA. I am not a huge fan of indicators because they are lagging data, but in this case, it would be wise to use one, which ever one best suits you. In a valid trend break your MA will usually be broken too.
3. I think the most important piece in a valid reversal is if price surpassed the previous relevant high/low.
Many times a good buy signal comes when a candlestick closes above the trendline, in a downtrend, though not always. A good sell signal could come from the close of a candle below the trendline , in an uptrend. This is where either patience, indicators or a combination of both come in handy.
If the trendline break is not valid (meaning it broke trend only temporarily), then you can redraw your trendline, or add another one to include the new high/low.
Very important if you trade against a long term established trend, expect it to be a short term ride. Get in and get out. The shorter the time frame the faster youd better get out after you see that you have lost your advantage No matter what time frame you made your counter trend trade, just know that it will eventually turn to continue to follow the major trend. A counter trend trade is like a river temporarily diverted, the trend will eventually resume its course. There are always trends within trends or hiccups/retracement, price never move straight up or straight down. It is essential that you know your major trend direction.
A breakout from trend can also be a valid exit signal to close out your profits.
Trend reversals are important because most traders want to buy near the bottom when price begins to move up and sell near the top when price begins to decline, and that means waiting for a proper confirmation before jumping in and getting your butt handed to you.
A reversal signal can be good for 0pips- 1100pips depending on your chart time frame and your patience level. For example the 5 min chart will give you many trading opportunities, but they are less reliable; whereas the monthly chart is much more likely to provide more accurate signals, so far this year it has provided 4 really good bounces for the USD/YEN pair. Longer term traders were able to capitalize on those opportunities, but they are a whole league unto themselves.
Remember, though trends tend to continue, nothing goes on forever and if you are going to be a successful trader, you are going to have to remind yourself that neither price nor trend heads in the same direction perpetually. In order to trade successfully you have got to be flexible. If you, like me, have been bearish all of 2009, you have got to know when to become bullish when theres a bounce in the market. Know when to hold em know when to fold em, know when to walk away and know when to grab your profits and run. As it stands; I dont plan to do a blog on candlestick formations, but you are welcome to go to my youtube channel where I have downloaded videos that I think are very helpful to new or a fresher for the more experienced traders. Please copy and paste the link:
http://www.youtube.com/user/TRADERSFRIEND.For a more in-dept look at candles read any of Steve Nisons Japanese Candle Trading books available on-line or at your local library. If you are going to purchase it, ebay is usually an excellent source for on-line trading materials.
Remember a consistently profitable trader spends more time waiting for valid entry signal than actually trading and that is a whole discipline unto itself(BIG SMILE)
HAPPY TRADING!!!!
Get 10 Trading Lessons FREE Click HereThis blog is not in anyway an enticement or solicitation to trade in the Forex Market. These tips are for informational purposes only and are not to be substituted for legal advice or council. I have written this blog in hopes that it will help you to avoid some of the terrifying pitfalls I had in the Forex Market before I learned better.
More info for WHEN TRENDS TURN ~ free forex trading books pdf:
Now we are about to embark on what is almost sacred territory for me, trendlines. Ahhhh..... What a most glorious word. Trendlines are one of my favor trading tools. If there is a pot of gold at the end of the rainbow in trading for me, I would have say that it is trendlines.
Why?????? Because using trend lines properly will put you on the right side of the trade most of the time. I personally use trendlines in all of my trading. Now for those of you who have used trendlines and it hasnt worked out for you. Please remember that the shorter the time frame you trade, the more your trend is likely to change. My advice is to find the prevailing trend and trade in harmony with it. Example, if the trend is bullish (going up) on the 30min charts and you trade the five minute chart. If the trend is bearish (going down) on the five minute chart, dont take that trade. It is much more likely that the trend will reverse on you than if you wait for a trade that is in harmony with the bullish trend.
Please allow me to elaborate. If you are trading that five minute chart and price has dropped 30pips, you need to wait for a good candlestick reversal confirmation and a trendline break, before going long. Candlesticks are very often the first sign of a trend reversal. The break of the trendline is just further confirmation. If you trade the five minute chart, you want to get in and get out fast!!! Remember on the five minute the direction of the trend is going to change frequently. The shorter your time frame the less reliable your trend, or your candlestick confirmation. On the smaller time frames, snatch your money and go!!!!!!!!!
Ok........What is a trend? A trend is the tendency for price to move (overall) in one direction for a period of time. I say overall, because you get price retracements and corrections. That is when price temporary takes a pause or temporarily reverses from the major trend.
It is essential that if you chose to use trendlines as part of your trading strategy that you determine the direction of price on a larger time frame, so that you know how to best trade your strategy and for how long.
For example if you are in the mist of a bullish price trend on the daily chart and it is bearish on the monthly chart, then you need to be aware that price will reverse in the direction of the major trend at some point, sometimes in as little as 2days. However if you are bullish on the both the daily and the monthly chart, you stand a much greater chance at a longer more successful bullish run.
The reason to determine your trend before you begin trading is because when you sit in front of the monitor all day with price pullbacks and spikes, it is hard to determine the primary trend.
When I first started to trade, I would sit up and watch price move for about 15-30 mins and some times longer, because I wanted to make sure that I was on the right side of the trade before I committed my hard earned money. I would wait just long enough until the end of a rally or dip and Id find myself on the wrong side of the trade and couldnt figure out why. It was almost as if the broker was just waiting for me to put in my order before price went the other way against me. My early trading life was extremely frustrating and eventually I went broke. I was staying up most of the 24 hours trading and traded all three markets; studying my butt of in between. I stretched my brains with all of the complex theories, and learned all of the indicators, and was still getting killed in the market. After all of that, I had to find what worked for me. Price action.........that is it and I use trendlines and candlestick formations to help me maximize my trading strategies.
Your trendline is diagonal support or resistance, it is that barrier that price is least likely to break. The longer the time frame the more reliable your trendlines. Though trends eventually break.
Traders Whiteboard #1 Traders White Board #1
Drawing trendlines.
To determine if you are in a bearish or bullish trend you will need to draw trendlines...........
For a bearish trend ( a trend in which price is making a series of lower highs) you want to draw your trendline connecting two relevant/major highs, then your trendline should project itself from there. This is a picture of a downtrend with a bullish break at the end.
Video Lesson: Trading a Downward Trending Market Click Here
For a bullish trend ( a trend in which price is making higher lows) you want to draw your trendline below price, connecting relevant lows, then your line will project itself from there.
This is an uptrend with a 20period moving average.
How to find the Trend and How to TRADE the Trend Video Lesson Click Here
Lastly I want to touch on a trend channel. A trend channel can be bullish or bearish; but in a trend channel you want to connect both the relevant highs and the relevant lows to form a price channel that forms diagonal support/resistance.
An example of a bearish channel. This is a longer term channel, but I included enough of it so that you can see how price bounced off of support and resistance clearly defining buy/sell zones. I do want to warn you that price will not always fit perfectly in your trend projections, it can be quite naughty sometimes, but we will discuss that in a later blog "When trends turn"
Until we meet again my Friend.
Happy Trading!
For any questions you may contact me at TradersFriend@yahoo.com
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This blog is not in anyway an enticement or solicitation to trade in the Forex Market. These tips are for informational purposes only and are not to be substituted for legal advice or council. I have written this blog in hopes that it will help you to avoid some of the terrifying pitfalls I had in the Forex Market before I learned better.
More info for Trend lines ~ forex trading secrets book pdf:
