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For you trend traders, how many higher upper, higher lower pairs (or the opposite for short trading) do you need to know it is a trend and not a pseudo-trend that will reverse on a moment's notice? As a corrolary, to what extent (i.e., how far back) might you use to see if there is a trend about the trends?



Wed, 03/08/2017 - 1:02pm

There is no established distance that you go back to determine trend, and the good news is you don't have to worry about it for the most part. What to do is use a top down analysis. That means use the higher time frames: D7, D1, H4, H1 to establish your trend, then drill down to the M30, M15, and M5 charts to further refine your analysis and look for set ups. Use the M1 for entries and exits.

As an example of how far to go back take a look at the GBP/USD daily chart. This thing was in a pretty strong downtrend until that triple bottom was put in with those 3 low pivots in October, January, and March. But now it has reversed to the upside on both the daily and weekly charts. Next we look at the H4 and we see that flag pattern that has emerged since the big up move on April 18. This chart is still bullish, although it does yet have some proving to do since that down move of May 25 and 26 because the bounce has been fairly weak. It will need to hold around the 1.2950 level to remain bullish. Once it does that we can look for pullbacks to support areas for entries and breakouts. If it can't sustain the 1.2950 area then it could break down and test the lows of the flag pattern around the 1.2775 level.


Oops, 2nd to last sentence should read: Once it does that we can look for pullbacks to support areas and breakouts for entries.