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 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.
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.
Here’s my sifted buffet of thoughts on the subject:
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. This is when you get the power moves.
People start dreaming about the black Porsche they’re going to buy or throwing in their regular job
because it can feel like a doddle making money in these conditions. It’s a dangerous time however to test a new strategy. It’s likely to appear unbeatable.
Worse than that however, is the devoted and diligent trader who wastes these conditions. 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 reads 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.
Admittedly intraday trading has a buffet of different timeframes to consult. 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.
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 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.