Hi Traders,
You know, trend talk should really be the Masonic handshake of the trading community – the one constant that unites traders like a secret shared language.
Instead, I’ve found it to be the divisive opposite – A source of debate amid the constant backdrop of clichés like Trend is Your Friend.
The situation is made more complex by your trading outlook. Are you a long term trader? Short term?
At risk again of offending any Absolutists who might be reading, here’s the thing about trading. There are layers to the truth. A little bit like life actually. And when you persist in needing the market to be One Size Fits All, you’re soon in irreconcilable territory. Hmm, yes, a bit like life again actually.
It can really make you a headcase if you need to deal in ironclad concepts.
The market being the Non-Negotiable Mistress it is, calls us to deal in pliable logic. Finding a definition of Trend that is neither vague or sludgy is imperative.This is especially so for intraday traders who are routinely subjected to the equivalent of daily tide changes when it comes to trend. To keep your head above it, you’d want to have it well sorted.
Here’s my sifted buffet of thoughts on the subject. Just view it as looking over one trader’s shoulder. Disclaimer : I’m not saying this is my recommendation for anyone else or their trading. I just remember how good it was when I was learning to sneak a look at what other traders were doing. Then align that against what I was doing.
First thing to say is that not all trading conditions are the same. Seems an obvious statement to make. But conceptually,
a lot of traders think that price movement is like the ocean. It’s all water, so put your boat in anywhere. Not true.
The closest you’ll get to perfect weather in the market is what I term the SuperCycle – ie when long and short term cycles sync in the same direction. It’s a lovely time to trade. You tend to get the power moves.
People start dreaming about the black Porsche they’re going to buy or throwing in their job
because it can feel like a doddle making points in these conditions. It’s a dangerous time however to test a new strategy. It’s likely to appear unbeatable. You’re in the locker room thinking, Federer’s next round. I’ve got him covered.
Worse than that however, is the devoted and diligent trader who wastes these conditions by NOT clocking that somehow the planets have suddenly aligned. With my own trading, I have different trade management parameters for Super Cycling conditions. I’m not a one size fits all kinda trader.
If you understand the SuperCycle, then you have a benchmark for all other tiers of trend. Variations to the Trend can all be viewed against the “optimal” backdrop of the SuperCycle. I never get into a trade before first reading where I am in relation to the SuperCycle. It’s a mentality that always salutes the underlying conditions. I won’t say I always religiously stay with the trend. I do trade reversals when certain conditions are met. But in those situations, I’m mindful that I’m against the trend and manage it according to more stringent criteria.
For 24 hour markets, I religiously use and consult a 4 hour chart for trend as it maps the three major sessions (London, US and Asia) on the one chart. I call the 4 Hour Chart a Mini Day Chart. With intraday positions, I never go against the direction of the hour chart. The 30 Minute Chart is an essential companion chart to the 60 Minute Chart. Sometimes an hour’s worth of information builds on the “wrong” side of the Hour chart close so the clues only ‘print’ to the 30 Minute Chart.
Most importantly, I never read trend from anything sub 30 Minutes. Intraday timeframes shorter than 30 Minutes are purely for CLOSE VIEWS of what I’m reading from the higher timeframes – a far cry from when I first started trading and would be incessantly parked up on a 1 Minute and 5 Minute Charts as if they were a universe unto themselves.
Admittedly this described approach requires me to use a lot of timeframes for each single instrument. With time, you get supremely comfortable with that and learn to view each timeframe as an enhancement of a single story unfolding.
My Signature Intraday Fan and Template Gradient Tool help carry that load. And act as an extra set of hands as they are tools to help seamlessly homogenize analysis across all such timeframes.
Of course, no discussion of trend would be complete without talking about anti trending conditions.
This is a Bermuda Triangle for a lot of traders.
A lot of markets only trend for 30% of the time. So dodging the black hole for the other 70% of the time requires some good methodologies to stay out of the shit.
Intraday traders really do need to have their thoughts sorted on this topic because sometimes sideways conditions last for days on end. You have to work out whether you’ll sit it out or participate in range trading for those times. I have different set up and trade management for range trading conditions for this very reason. Again, not one size pips all. Oops, not one size fits all. Additionally, I hold the general expectation that power moves don’t happen in ranging conditions.
Determining range bound conditions is not a job I relegate to moving averages or other lagging indicators either. As a Pure Price Trader, I rely on reading the raw data of the market to tell me about trend. And no trends.
The number of traders I’ve met in my life who couldn’t tell you how to read the raw data always astounds me. Leaving such an important job to a faulty piece of equipment like a lagging indicator. AGH! That’s akin to paying someone to walk El Camino for you and thinking it will repent your sins. No thanks.
Disclaimer – This post is intended for information and entertainment purposes only. It should not be regarded as financial advice, recommendation, or solicitation of any product, service or trading strategy.