How to determine the strength of a trend
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Quote from primemover:
spike,
i am merely quoting the main proponent of trend following. definately not a non believer. this was found on his site.
prime
You say it comes from "the main proponent of trend following", so this is a worthless statement. Why? Because we don't know who said it, we don't even know if it has ever been said, and we surely don't know if it was a trendfollower. In short: you can tell us anything you want.
That confirms my statement that it's a waste of time to argue about trendfollowing.
I judge on my personal experience to decide what to do and what works. Everybody else should do the same.
If throwing darts brings lots of money, you should throw darts.
Clarification:
You can not tell or have a way to determine the strength of a trend.
I stated earlier how to set it up but then it will be too dificult for most to set-up or have the patience to prove.
I am not religious about any part of my trading nor am I an evangelist. But I like what you said about learning something new. So here goes:
First you need a way to test the validity of an entry against random. I use a scatterplot: MAE vs. MFE. A valid entry methodology means if you plot random entries vs. the method's entries, the methodology gives you a very different and favorable distribution.
What I have found so far is that adding "with trend" to the entry conditions makes the distribution even more favorable. Very simple, very straightforward. My entries are better trading with the trend.
Correlation studies aren't really asking the right question. If I am holding five suited cards, say hearts, the chances of drawing a heart next are diminished. However, you can't accurately predict what the next card will be nor will the suits of cards coming off show any correlation. Perhaps it is a far reaching analogy, but it is how I understand the results of the tests that I do. Trend throws the probabilities in favor, even though it doesn't do any good for prediction.
The guy who reminded us that trends are in the eye of the beholder brings up a good point. When I buy a reversal on an intraday time frame, the trend is still down in the next higher time frame, perhaps, but the trend on the daily chart is up. I define trend in the usual way, HH, HL etc. So strength of trend never really entered into it for me. Thanks NihabaAshi for sharing that idea.
P$
Quote from Samson77:
The truth is there is no ONE tool to measure a trend but many that must be used in harmony.
I appreciate your strength of belief but I disagree.
Every tool has it's own idiosyncrasies so lumping them together on a single chart causes even the most seasoned trader confusion because they are constantly conflicting with each other. This is a perfect example of why determining the strength of a trend is so elusive to so many.
Take for example 6 separate indicators or tools that are each subjectively 80% accurate (I'm being liberal). These tools, used in unison or in conjunction with each other, results in a combination accuracy of less than 27%. The more indicators or tools you add to a chart the more cluttered it becomes and the less accurate the results become.
Using a single strength, momentum or trend indicator (there are many) and using it consistently, along with price, will give you better and more accurate results in the long term. The problem comes in with first finding one consistent smooth tool, setting it up and then having the patience to due your due diligence to prove to yourself that it works.
The majority of traders out here don't have that patience level so they migrate to whatever is simplest to start or the newest fad. The problem is that traders make it a lot harder than it has to be. Your comment is an example of what a lot of traders believe, which is a major trading misconception . Simple mathematical proof confirms it but the fallacy still exists.
Charlie
This belief that more is to confusing is a BIG mistake in my opinion.
A skilled trader will know HOW and WHEN to use the correct tool at the RIGHT time.
KISS is a BIG mistake to a trader.
In order to have a complete understanding of where the market is a true professional will know EVERYTHING about the market.
To give an analogy of a mechanic.
Who would you want working on your $100,000 BMW?
The guy that has been changing oil for 10 years or the guy that just finished a 5 year certification program and knows EVERYTHING about the car.
A trader needs to understand every tool in his tool box and how and when to use them.
Ask your mechanic how many tools does he use at one time to diagnose a single problem on that car. ONE
An automobile of any value is a far more complicated an object than the Market. You don't think so because you have created a complicated environment out of it. You are comparing something with hundreds of moving parts and hundreds of specific functions to something that has only one function and two directions. The Market only goes Up or Down, even in consolidation it only goes Up or Down but in tighter and tighter ranges until it breaks out. The Market (the Indices specifically)never flat lines. How many tools do you need to verify the direction price is going on any single chart at any given time? Traders are their own worst enemy and purposely complicating it, confirms that.