Okay, everyone knows that, but ask different people about the trend on the same TF, and guarantee we'll get different answer.
Why? Because the trend is something really relative. It depends on where we're seeing the chart from and to.
For example in this picture:
If we see it from A-B, the trend is up. But if we see it from B-C, then it's down, and if we see it from A-C, then again the trend is up.
So which one is right? All of them is right. Because as I already mentioned, it depends on where we see it from and to.
One major problem in identifying a trend is there's no single, universal or standard way to do it. People have different approach based on their own knowledge and concept, so this "trend" can be quite complicated thing.
In the analysis concept I'm using (it's KG's analysis concept), one important basic concept is the TIME concept. To put it simple, we categorize the price movement based on time, such as daily, weekly, monthly, yearly, 8 hourly, etc etc (please don't confuse it with the chart TF).
The very basic technique to read the move is by using moving average (MA). Any MA will do, but in this case I'll use only SMA.
Take a look at this picture:
In the picture I plot a 24 period SMA (that represents 24 hourly, or daily movement), applied to close. Can you see the pattern there? (If you can't then there's something wrong with your eyes :D)
Okay there's one very important thing to know, the price moves in a cycle. It's trending-sideways cycle. Or in KG's concept it's called normal-abnormal cycle, where normal means the price is close to the average while abnormal means the price is far from the average. So here trending is considered as abnormal phase while sideways is considered as normal phase.
Visually, trending or sideways can be seen easily by the MA angle.
But, what's more important is the price action, how the price reacts to the MA.
Trending is when price is moving away from the MA, retrace is when price is moving towards the MA from previous trend, and sideways is when price is just moving around the MA.
Now how do we tell if the trend is about to begin or about to end. Then we'll use Bollinger Bands (BB)
Here I plot period 24 BB, standard deviation (SD) 1.
Why SD 1? Well, based on statistic concept (correct me if I'm wrong since math is not my background) standard deviation is used to measure how far data is spread from the average. Low SD value indicates that the data is close to the average while high SD value indicates that the data is far from the average.
The majority of the data (or in forex case, the price), approximately 68% is spread within SD 1. And we all aware that something that is close to the average or majority is considered normal.
So we use the SD 1 bands to identify the trending or sideways condition.
Here's how to read it.
If the price is outside SD 1 bands and moving away from the MA, then it's trending. It's confirmed by the MA slope or direction.
If it's trending but price starts to move inside SD 1 bands, then the trend is weakening or about to end.
If the price is moving inside SD 1 and the MA is flat or flattening from previous sharp angle, then it's sideways.
If it's sideways but price starts to move outside SD 1 bands, then a trend is about to begin, it's confirmed by the MA slope.
And the distance between bands also indicates something.
If the bands are expanding then the range is expanding meaning the move is strengthened.
If the bands are contracting then the range is tightening meaning the move is weakening.
If the bands are flat then the range is relatively constant meaning it's sideways.
Allright, that's all for now, hope you find it useful :)
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