How to Identify Trends Like a Master Trader?

Have you ever come across a situation where you’re analyzing a trend across different time frames, hoping it points in the same direction, but only to find out its opposite? The 5-minute time frame shows an upward trend, but it’s a downtrend on the daily time frame. What should you do? Should you be going long, or should you be going short?

Taking advantage of different Forex time frames can assist traders in spotting the more significant trends and price actions that may be unfolding. In this article, you will grasp what a trend is, the secrets to identifying trends like a pro and common mistakes traders make when identifying trends and avoiding them.

What is Trend?

A trend is an everyday direction in which prices change over a period. A trader can represent trends as long term, short term, upward, downward, and even sideways. Long-term trends are price movements that occur over a long period. Short-term trends are price movements that happen over a few hours or days. If a trader recognizes the market’s direction is upward, the market is then on an uptrend. If he acknowledges the tendency to be in a downward, it is then in a downtrend. If they can classify it neither upward nor downward or instead fluctuating between two levels, then the market is said to be in a sideways trend.

Secrets to Identifying Trends Like A Pro

1.  Specify your trading timeframe.

Switching between different time frames on your trading platform enables you to have different perspectives, either beneficial or detrimental to your analysis. Forex trading time frames are commonly known as long-term, medium-term and short-term. Depending on your trading style, if you are a long-term trader, your trading style is Position trading, usually weekly. If you are a medium-term trader, a swing trader falls in this bracket, and the time frame is the daily time frame. Lastly, if you are a short-term trader, your styles are what you would call day trading or scalping, which is often done in hourly time frames, 30-minute time frames or shorter time frames.

If you are a long-term trader, define the trend on longer timeframes. For long-term traders, the movement on the 5-minute timeframe or the 30-minute timeframe is irrelevant to you. If you’re a short-term trader and you trade off the 15-minute timeframe, this means the higher timeframe like daily, weekly, or monthly is irrelevant to you because you are primarily a short-term trader. It’s always good to specify your trading timeframe and stick to it.

2.  Have the same amount of bars on your chart.

Just like a bar chart, a daily candlestick shows the market’s open, high, low, and close prices for the day. The daily candlestick represents the price range between the open and close of that day’s trading. Not only can traders alter the colors of the candlesticks in their trading platform, but they can also determine the number of candlesticks they want to view by either zooming out or zooming in on their trading platforms.

Let’s assume you’re trading off the daily time frame; you always want to be having the same number of bars on your chart. Usually, most traders always have 300 bars on their chart. Zoom out to get your amount correct before you start analyzing your chart. You always want to be consistent with this. Because sometimes, when you have 50 bars on your chart and sometimes when you have 200 bars on your chart, you will see different types of trends. Fifty bars on your chart will show you a separate message compared to 200 bars on your chart. One shows you a big picture, and one offers you a smaller perspective on what’s going on at that moment, hence why it is always essential to have the same number of bars on your chart consistently when you’re trading the markets.

3.  Look at the price action.

Price action relies on historical prices (open, high, low, and close) to help you make better trading decisions. Price action tells you what the market is doing and not what you think it should do. Looking at your price action will help you pinpoint your entries and exits with better precision.

You should always be looking to evaluate what the market is doing to make better decisions. Assess if the price is making a series of higher highs and higher lows, or is it making a series of lower highs and lower lows, or is it just contained within the range? For example, if you see the market is making a series of higher highs and lows, you can conclude that on this particular time frame which is the daily time frame, the trend is up, and you want to be buying. Or if you see the market, the highs and lows are pretty much of equal area around the same level; then you can conclude that this market on this particular time frame is in a range, and you can either buy or sell. This technique will help you never to get confused if whether you should be buying or selling.

The Trend Is Your Friend

85% of retail traders lose money, 90% of new retail traders lose all their money. The main reason behind this is because traders trade against the trend. The good old saying, ‘The trend is your friend,’ is something traders should consider when exchanging the markets. The old trader adage that the trend is your friend is critical. It seems simple on the surface, but there is some complexity in identifying an uptrend or a downtrend. Being able to identify trends helps you a lot in the long run. Your job as a trader is not only knowing what happens next but, instead, it is to gather the clues the market leaves behind and assemble them in a way that stacks the odds in your favor.