How to define a strong trend ?
- Thread starter moonmist
- Start date
Some TA indicators try to detect it (MACD, ATR, Bollinger Bands etc.).Quote from moonmist:
Hi,
Is there any way to define a strong trend objectively ?
Any comments and suggestions would be appreciated.
Thanks in advance.
Just study and play with some indicators on these stocks:
DIS AMGN LEN CMCSA VMED
The best way to define a strong trend objectively is to look at as many after-the-fact examples of what you consider a "strong trend" in your selected trading time frame and note as many markers (price patterns, indicators) as you can that occur during that strong trending price run. You should find certain markers that occur across all the examples. These become your strong trend identifiers.
I've found that the one marker that occurs in strong trends in both my 5-min intraday time frame and my daily swing trading time frame is a failure of price to close below a 20-period EMA before resuming. In extremely strong trends, price may not even pull all the way back to a 20EMA before resuming.
I've also found that the price action leading into the start of strong trends is usually a break out of a period of low volume consolidation with no retrace into the consolidation zone or a significant gap up through previous resistance or gap down through previous support with no retrace into the gap zone.
Since you never know for sure if either of these conditions will trigger a trend, much less a strong trend, you must do what all traders do on a regular basis: Assume the risk, be prepared to take a loss at the price where the breakout would be considered a failure, and let the winner run until the trend puts in a clear reversal signal in your trading time frame.
I've found that the one marker that occurs in strong trends in both my 5-min intraday time frame and my daily swing trading time frame is a failure of price to close below a 20-period EMA before resuming. In extremely strong trends, price may not even pull all the way back to a 20EMA before resuming.
I've also found that the price action leading into the start of strong trends is usually a break out of a period of low volume consolidation with no retrace into the consolidation zone or a significant gap up through previous resistance or gap down through previous support with no retrace into the gap zone.
Since you never know for sure if either of these conditions will trigger a trend, much less a strong trend, you must do what all traders do on a regular basis: Assume the risk, be prepared to take a loss at the price where the breakout would be considered a failure, and let the winner run until the trend puts in a clear reversal signal in your trading time frame.
5 bars back on the timeframe your trading, calculate how much of it is within the noise and deviations from the noise. Then look at more bars back.
(uptrend)
h>h1
h1>h2
h2>h3
h3>h4
h4>h5
l>l1
l1>l2
l2>l3
l3>l4
l4>l5
calculate how many bars achieve this before failing (subset 1)
subset 1(high) > subset 2 (high)
subset 2(high) > subset 3 (high)
(uptrend)
h>h1
h1>h2
h2>h3
h3>h4
h4>h5
l>l1
l1>l2
l2>l3
l3>l4
l4>l5
calculate how many bars achieve this before failing (subset 1)
subset 1(high) > subset 2 (high)
subset 2(high) > subset 3 (high)
I have been examining price, indicators, other markers, etc., to find a set of conditions under which common reversal patterns would fail most of the time. Still experimenting.
Yes. In a strong uptrend, price does not close below the twenty-period EMA. In an extremely strong uptrend, price may not even close below the nine-period EMA. How many bars need to close above the twenty or nine-period EMA before one can say that there is a strong uptrend ? I guess that is where experience and screen time count.
Yes. As a trader, we have to deal with uncertainty. No risk, no gain.
