4 TIPS ON HOW TO DETERMINE THE TREND ON THE CHARTS

One of the fundamental elements of “Long Term” trading success is to be able

to identify the trend of the market.
We have all heard the saying “the trend is my friend” and in the main this is
correct, but how do you actually go about determining the bias of the market?
When I started on my trading journey in knew conceptually the importance of
being able to correctly determine the trend of the market.
However, it was at times confusing, and took me quite a while to develop this
skill, that’s because as traders despite our best efforts to determine the bias of
the markets, things can change quickly at any time.
Through trial and error, disappointments and losing money I finally learnt how
to easily determine the bias of the market.
In this article I want to teach you the “ins and outs” of how I determine the
trend, so hopefully you won’t have to make the same mistakes I made.
Before we dive into this lesson, I want you to know there is no magic tool, no
indicator, not even a set of rules that works all the time.
Determining the trend is not an exact science, because the market moves for
the most part based on human emotion.
Human emotions are unpredictable so therefore the market is unpredictable
(no news there). So, understand this NOTHING is 100% accurate.
The very best we can do as traders is to have a trading edge that plays out
more often than not, and as a part of that trading edge being able to identify
the trend is of paramount importance.
Most traders make the task of identifying the trend in general more difficult
than it needs to be, and I understand that because there are often trends
“within” trends, which are generally short term retracements which deceive
traders and have then second guessing their original analysis.
With everything I do I try and keep things as simple as possible, I have learnt
that simplicity is paramount to good decision making.
So, this lesson is what I do to identify the most obvious direction the market is
likely to head.
I hope you find this article a very practical lesson on how I go about identifying
the bias of the market.
Let’s, get started…

#1. SIMPLY OBSERVE YOUR CHARTS.

The first thing I want to determine is the long term, midterm and short-term
trend.
This is because quite often the market looks like its trending in one direction
when its actually trending in the other direction.
To clarify for me here is my definition of long term, mid term and short-term
trends.
 Long Term trend = one year or more
 Mid Term trend = 3 – 6 months
 Short term trend = 1- 3 months.
So, I ask myself what does the chart look like over the last year, 3 – 6 months
last 1 – 3 months? This gives me a visual view of the long term, medium term
and short-term trends.
Doing this will give you a clear view of the overall direction.
To determine the long-term trend, I like to get a “macro view”.
To do this I zoom out on the weekly chart first to give me the “bigger picture” I
have a simple clean (black and white) price action chart with no indicators on
it. This gives me an easy uncluttered visual of which way the market has been
heading.
Now I have a visual of the weekly chart I then drill down and zoom out to the
daily chart and see whether it correlates with what the weekly chart is saying.
For myself and my clients the daily chart is of utmost importance, so this is the
most important trend we want to identify.
By zooming out and looking at what price has been doing over the last 3
months to one year, you can easily identify if price has been going up, down or
sideways.
It really is as simple as that. Don’t complicate it.
In the example below by zooming out you get the “macro” picture of what the
market is doing.
The easiest and simplest way to determine the trend is by zooming out and
having a visual look at the market to determine the bias. Clean simple chart
without any indicators.

#2 IDENTIFY OBVIOUS HIGHS AND LOWS.

As markets trend, they leave behind swing points or pivot points. This is where
the market is heading in the direction of the trend, then it swings or pivots in
the opposite direction (retracement against the trend) before it swings or
pivots again to re-join the dominant trend.
By identifying the obvious swing points, you can easily see which way the
market is trending.
In the example below we have crude oil in an uptrend. If all you focused on
was the highlighted swing lows or pivot lows, you will see they form steps.
An easy way to think of it is if you are climbing stairs. You start at the bottom
and each swing low is a higher stair.
Conversely in a down trend each swing high is a stair that is descending, as if
you are walking downstairs.

#3 HIGHER HIGHS, HIGHER LOWS, LOWER HIGHS, LOWER LOWS

Once you have identified the obvious swing or pivot points you can then
determine if the market is making Higher Highs (HH) and Higher Lows (HL) or
Lower Highs (LH) or Lower Lows (LL).
In an uptrend you will generally see an obvious pattern of HH and HL and in a
downtrend a pattern of LH and LL.
In the chart below an obvious downtrend has formed you can see a clear
pattern of Lower Highs (LH) and Lower Lows (LL)
#4 IS PRICE RESPECTING VALUE?
Another way to determine the trend is to see if price is respecting “value
areas” on the chart. Is price “bouncing” from a static value area (horizontal
support or resistance) or a “dynamic” value area being the exponential moving
average (EMA).
As we have determined in a trending market price moves in the direction of
the trend then retraces or reverses (creating a new pivot or swing point) then
re-joins the dominant trend.
Its these retraces that help you determine the trend.
Check when price retraces then resumes the dominant trend, did price
“bounce off “or reject a value area, before continuing with the trend.
If price continues to bounce off a value area on the chart it is a good clue to
determine the underlying bias of the market.
In the example below you can see price had been rejected at a horizontal value
or event area on the chart after retracing.
You can also see that price was respecting the 8 day (red) EMA which means
price was “trading below” the EMA. Then price retraces and gets rejected or
bounces off the 21 day (blue) EMA. As you can see the pattern repeats itself.
To get a bigger picture put a 50 and 200-day EMA on your chart to see if price
is respecting the 50-day EMA and rejecting the 200-day EMA.
This is an easy way to identify the overall dominant trend of the market.
How is price reacting to these EMA’s?
If you see price respecting the shorter EMA and Bouncing off the larger EMA
after retracing, then you know you the market is trending.

In Conclusion
Identifying the market bias or trend can be tricky, especially for beginning
traders, and I know for me this was a sticking point. It is one thing to know
entry points and setups, but if your trading against the dominant bias of the
market, your ability to make money decreases dramatically.
Taking the time to study your charts and apply these 4 methods of identifying
the trend will serve you very well indeed.
This article was purely on how to identify the trend. It was not a lesson on how
to trade the trend.
If you would like part two on how to “Trade the Trend” just reply with “part
two” if I get enough replies, I will teach you how to trade the trend.
I hope you have found this article useful. If you have just leave a comment or
like to let me know if you are interested in more educational articles designed
to improve your trading results.
Happy Trading.