Trend or Range: How to Know in Advance

schizo

schizo

This thread is for those who want to kick ideas around on the topic of trend and range, especially how to differentiate between the two early in the cycle so that you can take advange of it. It's a fascinating topic, and one that will make you filthy rich if you are able to crack the code.

First, a disclaimer: Take your meds and stay on topic. :)

That aside, let's get to work.

There are 2 types of trends: strong and weak.

What about ranges? How many types of ranges do you think there are? Are there also a strong range and a weak range?

I suppose you can say a range can be weak or strong. But not in the same context as weak or strong trends. Instead, there are short ranges (eg. short duration) and long ranges. And they portray different meanings depending on the context.

And we can't understand what a weak or strong trend is in complete isolation. It has to be taken in context of the range, be it weak or strong.

You see, a range acts like a speed bump you find on the road. It's a damper that will slow down the trend. So even if it starts out as a strong trend, when it's followed by a range, it will likely turn into a weak trend.

I think that suffices as a conversation starter. I'll try to provide some charts to illustrate my points down the road.

For the time being, feel free to take the ball and run with it.
 
Look at support and resistance levels. When there is something bigger coming, the chances are much higher that the price is ranging on that level and come back for a while. Easier said than to spot of course. But overall it should be true.
 
There was one turtle follower from the original trader Dennis, who traded with the moving averages but only if they had a certain degree on chart. So any flat MovAvg showed him that the market was NOT TRENDING and only ranging. Of course you are missing good portion of the move with this approach but at least you are only entering on streng trends.
 
In simplistic terms a trend is a BO of something. All bars are either trend bars or trading range bars. All bull bars are trend bars. All bear bars are trend bars. This can be seen by dialing down to a smaller time frame. A bull bar on a 5m chart is a trend on a 1m chart. Ditto for bear bars.

Trends are always a BO of something. A BO of a previous bar. A BO of a flag or other chart pattern such as a range or triangle. If you can’t see it dial down to a smaller TF.

Trend come in two forms. A BO…a spike..that then morphs into a channel. A channel is a weaker form of a trend and begins with the first pullback of a spike. A channel usually morphs into a TR which may go on for some time (because of market inertia i.e. it tends to keep doing what it is doing at least for a while).

A multi-bar BO on a 5m chart is a one or two bar spike a larger TF. A channel on a 5m chart may show up as a PB on say a 15m or 30m chart.

Depending on what TF I am trading I trade what is there but do glance at other TF because they give me a bigger picture what what is say happening on a 5m chart.

As channels get flatter they are morphing into TR’s. However a TR is not a TR until there are 20 bars of sideways motion. Otherwise it could just be a PB with continuation of the previous trend. For example a 10 bar sideways move on a 5m chart that then has a BO of that move is just a PB with continuation on a higher TF like say on a 15m or 30m chart. That is why it is important to define what a TR is on any chart and when to call it a TR vs calling it a PB.

If a trader is trading an established 20 bar TR on a 1m chart he can use TR techniques on that 1m TF but he will have to make quick decisions. That same 20 bar TR pattern on a 1m chart shows up as a 4 or 5 bar sideways move on 5m chart and on a 5m chart should not be traded yet as a TR on that 5m TF.

I know there is a lot packed into what I have just typed but “think” about it.

So, the first step is to identify a TR. The second is to identify if it is broad or narrow. The third is to use appropriate trading techniques to extract profits from that particular TR environment.
 
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Real Money said:
First idea was a complex example involving lots of charts and explanations, but then I got a better one.

Vol is usually trending, but it's always range bound as well, to some degree, even intraday.

People say vol is "mean reverting" even...
More...
Im with you on the mean reversion of vol, but i'm not an options guy, and i like to make things as simple as possible for my not exceptional brain, so: how many options traders simply buy cheap vol and sell expensive vol? Like scan for unusually high IV in a liquid underlying and sell a strangle (or something)...and scan for unusually low IV and put on a long vega position?
 
All doji bars are 1 bar TR’s. Not necessarily a perfect doji but any bar with a small body less than 1/2 the size of the body. It can be a bear doji or a bull doji bar and usually a tail on top or bottom or both top and bottom. A single doji bar on ANY TF is a TR on a smaller TF. For instance, a doji bar on a 30m TF is TR on a 1m TF. The same Doji on a 5m TF is a sideways move of around 6 bars so not yet an established TR on a 5m but certainly an evolving TR on that 5m TF.

It is important for a scalper to understand these things because a one bar doji means pressures are in balance. Bulls and bears are about equal. However, if the doji closes on it’s high then bulls, at the close, have a slight advantage. Ditto for closes on a bear doji, just reversed.

I KNOW TRADERS THINK IT IS CRAZY BUT EVERY SINGLE BAR HAS A STORY TO TELL.
 
Trend bar = O-C Range (Candlebody) more than 50% of total H-L Range (Wicks).

A reversal of trend happens when a Trend bar in one direction overlaps a Trend bar from opposite direction (closing beyond the opposing candlebody most importantly).
 
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