How do you define a trend?

M

mashiyoshi

I don't know how many times I've heard the phrase: "Follow the trend" or "the trend is your friend."

I'm a little confused because one trader can look at a chart and say that we're in a downtrend. A second trader can come in and look at the same chart but in a different time frame and conclude that were in downtrend. Two opposing views of the same chart.

Is there a better way to define a trend in a more consistent manner?
 
Originally posted by mashiyoshi
I'm a little confused because one trader can look at a chart and say that we're in a downtrend. A second trader can come in and look at the same chart but in a different time frame and conclude that were in downtrend. Two opposing views of the same chart.
More...

if 2 people are using charts of different time frames, they are not the same. in your example, both people are right. pick a time frame and trade it accordingly.
 
A Trend is Simply a Series of Higher Highs in an Uptrend,, or a Series of Lower Lows in a Downtrend...It doesn't matter what time frame you are using because you can apply this, simple idea of a trend, to any style of trading. If a stock isn't making higher highs or lower lows then it is consolidating in a range and there probably isn't much of an edge in trading that stock.
 
Plot the same stock in different timeframes. For example, 5min, 30minute, and 1 hour.

For example, if you are a very short term player, look for strong uptrends (higher highs and higher lows) on the 30min and 1hour chart. Look for retracements in the 5min framework and buy them.
 
I don't think there is any good definition. Here is how I look at it:

pick a time frame for data and estimate how many bars your trades typically last. I prefer to determine trend by just looking at a moving average of 2 to 3 times the length of the average trade.

Not scientific of course. Works for me.
 
the definition remains. to have the MA moving up you need highs to go up, reverse it for down trend.
so both ways are valid. however I prefer 'higher highs' definition because it is fundamentally correct (people are willing to pay more and more and are not willing to discount. that's an uptrend).

The tricky moment are the reversals. I like Trader Vic's answer (see the book) to that.

again, a MA is fair enough, but to get enough confirmation requires a longer MA and therefore a longer lag.

neo
 
short term, intermediate term and long term. and there is noise
:D
pick one for your trading time-frame. Try to ignore noise :)

there is no need to define it, as I think a trend is self defining
concept. The biggest problem traders run into is to trade short
term and watch charts with a different time horizon or should
I say "influenced" by other trends. Fading a short term trend
while watching the longer term is a very good idea and it's not
really counter trend trade. Just that short term trends by definintion have a built in exhaustion point at which time they
long term trend will resume.
 
Good input from all on this thread.

It is imperative not to change time frames as your trade progresses. Of course you may consult several time frames to get a feel for the stock, but once you enter a trade, be careful not to change time frames to allow yourself more wiggle room. This will hurt because if you start excusing a bad trade by looking at longer time frames, your stops then become wider but your position size has not adjusted accordingly; longer time frame, wider stops, fewer shares.

While I have seen much input from others discounting the usefulness of ma's, I personally use them. On every chart I have a 9, 18, & 50. On daily & weekly charts I add a 100 & 200. In addition, the 9 & 18 are exponential while the others are simple. This system allows me to use crossovers as well as gauge positive or negative bias in general for every time frame based upon the relative position of the 9 & 18's to the 50. Of course, there are other considerations for entering & exiting a trade as well as trade management techniques, but the ma's serve as my trading framework and really help determine trend. And, with trading in general, there is no substitue for experience.
 
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