=======
Toby;
At the end of the day, closing prices,and;
the more the better.
In other words remember the cartoon of the man asking for change on the street;
his posterboard said ''help, I used to trade IPO's!!!''
How to determine the strength of a trend
- Thread starter toby
- Start date
Toby;
At the end of the day, closing prices,and;
the more the better.
In other words remember the cartoon of the man asking for change on the street;
his posterboard said ''help, I used to trade IPO's!!!''
the first question is--- trends--do they exist??
http://www.elitetrader.com/vb/showthread.php?s=&threadid=46620&highlight=do+trends+exist
http://www.elitetrader.com/vb/showthread.php?s=&threadid=46620&highlight=do+trends+exist
First, trends exit. Trends are one of those Market fundamentals that have always been hard to track but none-the-less always existent. Because it is hard to pinpoint, a lot of "talking-heads" find it easier to say that that don't exist then to expand any effort trying to prove or disprove them.
Trends specifically exist on the individual chart you are watching or trading. Once you trust that through back-testing the price oscillations on that chart, then you add a momentum indicator to verify, first the price oscillations and then the extreme levels of support and resistance of those price oscillations. Those extreme oscillations are you High Tide and Low Tide markers of price and stung together, give you the ability to interpret those oscillations as a trend. Again, a trend that is specific to that particular chart you are watching or trading. Now trade the minor price oscillations as they occur in the direction of the trend on that particular chart.
Trends specifically exist on the individual chart you are watching or trading. Once you trust that through back-testing the price oscillations on that chart, then you add a momentum indicator to verify, first the price oscillations and then the extreme levels of support and resistance of those price oscillations. Those extreme oscillations are you High Tide and Low Tide markers of price and stung together, give you the ability to interpret those oscillations as a trend. Again, a trend that is specific to that particular chart you are watching or trading. Now trade the minor price oscillations as they occur in the direction of the trend on that particular chart.
What's the difference is between a strong trend and a weak trend? A market is trending or it isn't. When it is not, it is moving sideways.
A strong trend gives lots of money, a weak trend gives little money.
A strong trend has a better risk/return ratio than a weak trend.
If you want to see what a strong trend is, look at Google ( or Yahoo a few years ago when it skyrocketed).
Moves can go smoothly but steady, moves can also be hefty and go exponential.
So there are many different degrees of trends, the market is not just trending or not.
A professional carpenter sees differences between two sorts of wood that can't be spotted by an amateur. A good mechanic sees the difference between a good second hand car and a bad one. This is also true for traders; they see differences in trends that can't be seen by newbies.
Hi PetaDollar,
Usually we don't know its a strong trend or a weak trend until after the fact (hindsight).
However, I think each trader has their own definition of what a trend is.
For me, as a price action only trader...
As soon as I see consecutive higher lows and higher highs with each pullback not retracing more than 50% of the prior price rise...
It's an uptrend.
To measure its strength...I obviously will need to compare the current trend to prior trends.
My current favorite measuring tool is the number of wide range bodies mutiplied by the number of points within the bodies.
Simlpe explanation...
Lets say today we had the above scenario about the higher lows and higher highs...
With 3 wide range bodies and each averaging a 5 point movement = 15 points.
Comparing that to a trend the previous trading day that had 4 wide range bodies and each averaging a 3 point movement = 12 points.
I would say today's trend is stronger than yesterday's trend.
It's not perfect but it gives me reliable info to help determine the strength of a current trend in comparison to a prior trend.
How useful is such info?
Well...as a price action only trader...I would decrease my position size (risk control) for reversal signals and keep my position size at normal for continuation signals.
Simply, as soon as today's current session wide range body ratio surpasses the prior trend ratio...
That's when I adjust my position size accordingly to type of trade signals I'm getting on a trend day (uptrend or downtrend).
On non-trend days (which occur most of the time)...
This type of position size management is ignored until the next trend appears.
I've only been doing the above for about a few months so its merits is still under a microscope by me...
So far...improved overall trading results.
NihabaAshi
any rudimentary time series analysis applied to stockmarket price series will clearly show that trends do not exist, except in hind sight. for example, the weekly changes in the sp futures during the 1990's is about -0.08. the correlation between daily changes is about -0.04 meaning the chances of a rise following 2,3,4 or more consecutive declines is approximately 10% higher than normal. based on this simple analysis, tradeable trends do not exist.
if you can present ANY studies of ANY stock price movement that shows trends when randomness is accounted for, please show me. i am open to learn something new.
the simplistic trend following mantra of buying new highs and selling new lows is exactly what the public does, and guess who gets caught holding the bag? i even saw one of the main proponets of trend following state that most traders dont buy the highs( or sell the lows) and this is why they fail. how convoluted can one get?? by definition, most traders buy new highs or they would not be new highs.......
prime
A Market is always trending on a per chart basis . . . it never isn't. Price that moves sideways is stagnant and Markets are almost never stagnant.