Warning: session_start() [function.session-start]: open(/home/content/08/5010208/tmp/sess_68q44htfhhje1otlb1dqlqncl6, O_RDWR) failed: No such file or directory (2) in /home/content/08/5010208/html/learning-to-invest/index.php on line 2

Warning: session_start() [function.session-start]: Cannot send session cookie - headers already sent by (output started at /home/content/08/5010208/html/learning-to-invest/index.php:2) in /home/content/08/5010208/html/learning-to-invest/index.php on line 2

Warning: session_start() [function.session-start]: Cannot send session cache limiter - headers already sent (output started at /home/content/08/5010208/html/learning-to-invest/index.php:2) in /home/content/08/5010208/html/learning-to-invest/index.php on line 2
How to find and confirm a trend?

confirming a trend
 confirm a trend image

 trend confirmation graphic

Join my newsletter (learn more)       General | confirming a trend    

About this site
Learn about investing in financial markets. I am trying to add new articles, information about inves...
Learn more

  • General
  •    » Technical analysis
       » Fundamental analysis
       » Intermarket analysis
       » Japanese Candlesticks
       » Money Management
  • Stock market
  • Foreign exchange
  •    » Forex strategies
       » Forex Journal
  • Options
  • PAPER trading
  • Platform reviews

  • Investing blogs

    + The Visual trader
    + Commodity Trader
    + Market Rider
    + Stock Insight
    + The Kirk Report
    + Long Term Investment Strategies
    + Short-term trading
    + Wily Trader

    Forex for beginners

    + Play/test with $25

    Entrepreneur blogs

    + Guy Kawasaki
    + Business Advice Pro

    Investing Games

    + Investing Experience

    How to find and confirm a trend?

    Tags -          

    In my past posts I have talked a lot about trends and that you should always buy or sell short in the direction of trend. What I have not talked about is how to actually identify an existing trend. In this post I will try to give you some idea how a trend existance can be confirmed.

    Firstly, what is a trend?

    A trend simply indicates that there’s more willing buyers than sellers or vice versa. There’s three main trends – upwards, downwards and sideways movement. Upwards and downward trends can then also be classified by duration – minor trends (couple of days to couple of weeks), intermediate trends (couple of weeks to couple of months) and major trends (couple of months to couple of years).

    There’s different ways to confirm a trend. Firstly there are simple trendlines. It is difficult to notice the beginning of the trend. But you can just start drawing trendlines on the charts – lines which connect different tops or bottoms. A good trendline consists of at least 3 tops of which each is moving in the same direction as the previous or 3 bottoms of which each is moving in the same direction as the previous. Usually 4th top or bottom should be seen in order to actually confirm the trend. While a straight line through the tops or bottoms would be an ideal version this doesn’t happen that often. Because of that – very often after you have drawn your first trend line through eg 2 tops or bottoms you would have to draw another trendline once the third top or bottom appears. The second trendline is then drawn through the first and third top or bottom.

    Note that the trendlines in a rising market are drawn through the low’s and in the falling market through the tops. See an example here –

    Now see the second chart here where you can see that the trendline #2 has got a 3rd low thus making it more trustworthy than the trendline 1.


    If, however, the new bottom is not in the line with either of the previous two trendlines then we have to draw a new trendline, third trendline from the first bottom. If the third trendline now exists like you can see on the following chart, then it is more likely that this so-said trend is going to reverse. These 3 trendlines are called fanlines.

    fan lines

    How can trendlines help you set your entry and exit points? For example, if you see a there’s a trendline with 4 increasing bottoms but then you notice that the price goes below the trendline (this is called penetration), this is often a good indication to sell or sell short.  You should also see if it was a minor or major penetration and if the volume was big on the penetration day compared to the previous day. Note though that this is just one indicator and additionally you should use more indicators to base your trading decisions on.

    Trend Channel
    When you draw both – the bottom and top trendlines then the area in between it is called trend channel. See the green line between the two trend lines – if the price goes above it it’s could be good idea to go long or if the price goes below it it’s a good idea to go short.

    I already mentioned that volume must confirm the trend. Here we could also bring in another indicator – VOI (Volume Open Interest). VOI is a measurement of the number of contracts traded in a day and it's is a sign of market activity. And here are some more good thoughts to consider –

    • If prices are going up plus volume and VOI are rising, the market is considered strong (bullish). Alternatively, if the prices are going up but volume and VOI are declining, the market is weak (rather bearish).

    • If prices are going down and volume and VOIare rising, the market is considered weak (bearish). Alternatively, if prices are going down and volume and VOI are declining, the market is strong (rather bullish).

    • Volume often increases dramatically at tops and bottoms.

    Moving averages
    In addition to simple trendlines, moving averages can be used to work with trends. There’s 3 ways to identify direction of a trend with MA – they are direction, location and crossover.

    Direction – we can identify a trend by taking a look at the direction of a moving average. If MA is rising, the trend is upwards, if falling, the trend is downwards. We should always look at the general look of the MA not act on small changes in it. One of the best moving average to use could be (exactly as said - *could be*) EMA (Exponential Moving Average). How long MA should you use? Well, it depends on how many signals you’d like to see and how timely you’d like them to be. You could use something like 50-day EMA.

    Price location – here we compare the current price compared to moving average. If the price is above the moving average, the trend is considered bullish, if the price is below the moving average, the trend is considered bearish. The Buy and Sell signals are then generated when price crosses above and below the moving average.

    Crossovers – here we would use multiple moving averages with different length. If the shorter moving average crosses the longer moving average, a signal is generated. Eg. If short moving average goes above long moving average, it would be a Buy signal.

    There will be more on this topic in the future, but for now I hope I managed to give you some useful information or at least remind you what you already had forgotten.


    Now what? Digg it  |  Add to My Yahoo  |  Add to Google Reader  |  Add to Del.ICIO  
    Comments (0) / Link to this topic - http://www.learning-to-invest.com/

    investment advisory
    www.thedtscorp.com -

    Forex trading systems

    #1 Time-tested Forex trading system, with DOCUMENTED PROOF, that has the potential to turn $1,000 into $1,000,000 in just 24 months. Limited-Time Offer Price: $97

    #2 Powerfully Effective Forex Trading System That's Shocking Professional Traders Around The World......Completely Guaranteed To Generate 83-114-157 Pips A Week! Price: $97

    #3 Two Forex trading methods which have been hidden for years, known to only a small group of Wealthy Trading Elite! Grab 100's of pips weekly by spending only a few minutes a day at your computer! Price: $97

    #4 These Ruthless Trading Tricks And Tactics Instantly Transform You Into A Profit-Making Machine Scoring Wining Trades After Winning Trades. Price: $97

    #5 The AWARD WINNING "work from home" solution by someone who used to work for the Deutsche Bank as a forex advisor. Price: $198 (50% coupon available)

    latest submissions
          » Volatility is your friend

          » Tips from successful day traders, Part 3

          » Tips from successful day traders, Part 2

          » Tips from successful day traders, Part 1

          » Make money not debt

          » Make money not debt

          » No skills? Free online trading school is there to help you

          » End of month and need a loan?

          » M&T e-Money Market

          » 5 Traits of Highly Effective Financiers

          » Great forex product reviews

          » It's all about money management

          » What is going to happen next?

          » Brutally honest analysis of yesterday

          » USD at its lowest levels of 2 years

          » Testing time, Day 3

          » Testing time, Day 2 UPDATE

          » Testing time, Day 2

          » Testing time, Day 1

          » My own trading plan

          » Technical indicators - Aroon, ATR, CMO, ADX

          » Creating a trading plan

          » Results of the trading competitions and next week

          » Trading rules - something new to think about

          » Forex strategies: Short term strategy

          » The game of probabilities

          » What can you learn from poker?

          » Elliot wave - guidelines for wave framework

          » Introduction Elliot Wave Principle & Fibonacci ratios

          » What does Straddle mean?

          » Forex platform review: Easy Forex

          » How to find and confirm a trend?

          » Different look into trading and life in general

          » Introduction to Swing Trading

          » Introduction to 1-2-3 Trading Method

          » More trading rules

          » Candlesticks – the importance of Gaps

          » Sakata’s Method / method of Munehisa Honma

          » Money Management

          » Candlestick Continuation Patterns

          » Forex and intermarket analysis

          » Candlestick Reversal Patterns III

          » Forex strategies: The Sidus Method (EUR/GBP and EUR/USD)

          » Forex strategies: Big Ben Strategy (GBP/USD)

          » Foreign Exchange: Carry Trades

          » Candlestick Reversal Patterns II

          » Candlestick Reversal Patterns I

          » Introduction to Japanese Candlestick Charting

          » MACD histogram

          » The Three Moving Average system

          » Technical indicators: Williams %R indicator

          » Technical indicators: Parabolic SAR (Stop & Reverse)

          » Common sense trading rules (Michael Jenkins)

          » Geometry for predicting market behaviour (Michael Jenkins)

          » Emotional vs rational trading

          » Competition: First Day’s thoughts

          » Trading competition, 4 weeks

          » Bollinger bands

          » Relative strengh indicator - RSI

          » Introduction to Intermaket analysis III - global markets

          » Introduction to Intermaket analysis II – related markets

          » Learn to do your maths

          » Introduction to intermarket analysis

          » Introduction to technical indicators II

          » Introduction to Technical indicators I

          » Recognizing chart patterns II

          » Recognizing chart patterns I

          » More on volume & OBV

          » Introduction to charts

          » Learning from winnings AND losses

          » What are sideways movements?

          » Importance of volume

          » Introduction to Dow’s Market trends

          » Bull Market and bear market

          » Who is Charles Dow and why should you know him?

          » Stock background search

          » Introduction to stock options

          » Forex - pips, spread, margin, leverage

          » Basic introduction to Forex trading

          » What is Pattern Day Trading

          » Signs a company is going bankrupt

          » How to analyse stocks and forex?

          » Which online trading platform to choose?

          » How do I set my financial goals

          » Investing basics - think before you act

          » Learning to invest

    Buy Silver
    goldmoney.com - why buy silver from goldmoney? all customer silver is insured and audited. open a free account to buy silver.
    buy future payments
    investment advisory

    Privacy Policy | All rights reserved © Learning To Invest 2006, Email: / confirming a trend

    Warning: Unknown: open(/home/content/08/5010208/tmp/sess_68q44htfhhje1otlb1dqlqncl6, O_RDWR) failed: No such file or directory (2) in Unknown on line 0

    Warning: Unknown: Failed to write session data (files). Please verify that the current setting of session.save_path is correct () in Unknown on line 0