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1. Trend - How To Determine The Trend

In the 4T's trading system video we use the weekly MACD to determine the trend


Trading with the trend is an edge. Most traders are trying to do this and it is no surprise. A trending market offers the best opportunities to make money simply because in order to make money you must buy low and sell high (or sell high and buy low). The quicker price moves from one point to the other, the quicker the profits materialize.

Trading with the trend puts the probabilities of finding a profitable trading opportunity in your favour.

One of the best ways to determine the trend is to use a longer time frame than your average trade length. Although at this stage you may not know what your average trade length is, we can use the following guide lines.

If you are an end of day trader, meaning your decisions will be made from daily charts, then using the weekly charts for determining the trend is a great start. Someone using weekly charts for the trading decisions might use the monthly charts for the trend. And if we go the other way, a swing trader who may be trading off 1 hour charts will like the daily charts for determining their trends.

 Trading off the -

 Determine the trend from the -
 Weekly charts  Monthly charts
 Daily charts  Weekly charts
 Hourly charts  Daily charts


We suggest the following tools.

  • Moving averages
  • MACD
  • Trend lines and Channels

Mechanical methods – the majority of the methods are suited to a mechanical system. They can be back tested with no subjectivity involved. This however doesn’t preclude them from being used by a discretionary trader.

 

A note on trends

The longer the time frame you trade and therefore from which you determine the trend, the more the trend is based on fundamental realities, and less on emotional and psychological market movements. Although long term trends and the fundamentals behind them are still a reflection of supply and demand of the market participants’ themselves, they are like an oil tanker which can take a long time to turn around. You can think of short term emotions and price as like a speed boat; able to turn very quickly.

Because of this, the longer time frame charts and indicators you use on them are cleaner, less volatile and easier on the eye. The smaller the time frame you view the more chaotic price can become and so too the indicators. This will become clearer to you once you start to look at the various indicators available on varying time frames.

The issue that arises from the smaller time frames and chaotic price action is what is commonly known as ‘whipsawing’, because price will tend to trend less and less the smaller the time frame you apply. It is important then for a short term trader using short term price movements to consider this.

 

 

Move on to Step 4 - Module 2 > Trading System Builder Tool Kit: Trading Rules > Trend: Moving Averages

 

  

____Step_1____
Welcome
Binding Agreement
____Step_2____
Your Trading Business
□ Trading Styles
□ Objectives
□ Business Resources
□ Business Assets & Liabilities
____Step_3____
Market Basics
□ Stocks
□ Forex
□ Futures
□ Options
□ CFDs
Trading Basics
□ Reading Price Charts
□ Types of Markets
□ Types of Trading
□ Placing Orders
____Step_4____
Charting Basics
□ Pivot Points
□ Trend Points
□ Isolation Points
□ Real Bars
□ Summary & Test
□ Answers
Trading System Builder Tool Kit
□ Trading Rules
□ -1 Trend
□ _Moving Averages
□ _MACD
□ _Trend Lines & Channels
□ -2 Trigger
□ _Moving Averages
□ _MACD
□ _Stochastic
□ _RSI
□ _Bollinger Bands
□ _Fibonacci
□ _Support & Resistance
□ _Trend Lines
□ _Divergence
□ _Volume
□ _Price Bar Patterns
□ _Breakouts
□ _Which Triggers To Use
□ -3 Trade
□ -4 Terminate
□ _Initial Stop Loss
□ _Exit Strategy
□ -Filters
____Step_5____
Risk Management
Back Testing & Evaluation
Running The Business
Additional Tools & Resources
Resources