# Lifecycle/Stages of a Trend



## pavilion103 (17 May 2011)

One thing I haven't considered in great details of the lifecycle or the stages of a trend. I thought it would be good to discuss the different stages, how to identify them and how to best trade them. 

It would be good to post some charts with examples and to see how the stages of the trend appear in both short and long term timeframes. 

Below is some information and a picture I found on a website. If you have anything better than this we can use that instead/in addition. 




Stage 1 (The beginning - the nascent trend)- When a reversal occurs and a new trend starts. The trend is just beginning and traders don't yet have confidence in the trend itself.

Stage 2 (The fully charged trend) - price movement is confident and there is little room for uncertainty about the direction of the trend itself. 

Stage 3 (The aging trend) - The trend gets tired. Experienced traders lose confidence in the trend and inexperienced traders are still trying to jump in and grab some profits from the trend. The aging trend can be seen by stages of price consolidation and chart patterns. 

Stage 4 (The end of the trend) - This is the point where experienced traders and long term traders are taking profits. The close of all these trades usually leads to a reversal.


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## pavilion103 (17 May 2011)

It would also be interesting to know how much attention short term trades give to medium/long term charts when looking to enter a trade and vice versa with long term traders.


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## Gringotts Bank (17 May 2011)

Plot some pivot points.  Higher lows + higher highs = uptrend.  That's all anyone needs.  

In fact you don't even need that.  Put up any chart of any stock, currency, commodity and I'll tell you within 1 second whether it's in an uptrend or downtrend just by looking.  You can also do this, you just don't realise it.


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## skc (17 May 2011)

Gringotts Bank said:


> Plot some pivot points.  Higher lows + higher highs = uptrend.  That's all anyone needs.




That is very true. Most trend identification methods are subjective. For example trade A's 20day moving average suggests it is an uptrend, while trader B's 50day moving average suggests it is a down trend. And you have even more interpretative methods like wave theory which everyone will have a different read.

Higher lows and higher highs are one of the few objective methods of identifying a trend. Give the chart to 100 traders and they will all have the same read.


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## pixel (17 May 2011)

pavilion103 said:


> It would also be interesting to know how much attention short term trades give to medium/long term charts when looking to enter a trade and vice versa with long term traders.



 I have based my Trading Plan on the Life Cycle concept.
The stages are numbered also 1 to 4, but the association is different to the one you showed.
Here is the original presentation: http://rettmer.com.au/TrinityHome/Trinity/Share Market life Cycle.pps
(c) SAS Global/ Trade Tech


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## sinner (17 May 2011)

Gringotts Bank said:


> Plot some pivot points.  Higher lows + higher highs = uptrend.  That's all anyone needs.
> 
> In fact you don't even need that.  Put up any chart of any stock, currency, commodity and I'll tell you within 1 second whether it's in an uptrend or downtrend just by looking.  You can also do this, you just don't realise it.




Gotta agree with the GBank on this one.

They call it the "8yo test". If you can't figure it out, the nearest 8 year old child should be able to do the task for you. Put the child on your lap, show them the chart and ask them whether it is going up or down or staying still.

If you are a trend trader and can't eyeball a phase 2 chart, then all you need is more chart time, not a method of identifying them. If you are a range trader and can't eyeball whether the chart you are watching is ranging or trending from just looking at it, then all you need is more chart time.

Don't overthink it. Momentum and Rate of Change are indicators that will help you visually grasp and numerically quantify the information you are looking for. Learn what they are before you throw one on the chart.

skc pointed out "higher highs and higher lows" analysis you can add one more facet here: the distance between the higher and lower swings this should help identify how much power is in each swing and possibly some cyclical attributes of the movements.

e.g. if the higher highs and higher lows are going 50 up (higher high), 25 down (higher low), 100 up (higher high), 50 down (higher low), 200 up (higher high), 100 down (higher low), you know that the cycle is progressing by retracing to the last cycles 50% level and then the amplitude of the cycle increases by double (just a crude example)


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## pavilion103 (18 May 2011)

Does anyone use Wave Theory. I know Elliot Wave has copped a fair bit of criticism. Does anyone use this? or use parts of it for secondary analysis to support/confirm their other analysis?


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## tech/a (18 May 2011)

Yes.
You only need to know the basics of wave structure.
If its not clear then look else where.(The wave count)


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## IFocus (18 May 2011)

pavilion103 said:


> It would also be interesting to know how much attention short term trades give to medium/long term charts when looking to enter a trade and vice versa with long term traders.




When trading with strong market or market sector trends / momentum you can become a genius in any time frame (the market will determine your return IMHO).

Normally you would look up at least  1 time frame daily / weekly but if you are trading down around the 1 minute area or ticks then generally you would be looking at several time frames above looking for higher time trend directions, support / resistance etc these things start to determine if you take or how long you might hold the trade for or profit targets etc.

How to measure or determine where the trend is or not becomes the tricky part.

EW can be used in part or 100 other methods they will all work to a varying degree..........bit like all the other things to do with trading.    

Personally I use a 20 and 50 MA to tell me trend direction nothing fancy and I do look at EW structure out of interest.


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## pavilion103 (18 May 2011)

IFocus said:


> When trading with strong market or market sector trends / momentum you can become a genius in any time frame (the market will determine your return IMHO).
> 
> Normally you would look up at least  1 time frame daily / weekly but if you are trading down around the 1 minute area or ticks then generally you would be looking at several time frames above looking for higher time trend directions, support / resistance etc these things start to determine if you take or how long you might hold the trade for or profit targets etc.
> 
> ...




1. If I am normally trading daily charts does that mean that knowledge of the trend/support/resistance areas in weekly charts is of value? and probably sufficient?

2. It appears to me that waves are fractal in nature. There are waves within waves and then even larger waves. Obviously there would be the wave which is most suited to the timeframe you are trading but I would assume that different traders might get different results from their analysis based on the particular wave they are looking at?
Is there such a thing as primary anf secondary waves or something of the like?


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## tech/a (18 May 2011)

pavilion103 said:


> 1. If I am normally trading daily charts does that mean that knowledge of the trend/support/resistance areas in weekly charts is of value? and probably sufficient?
> 
> 2. It appears to me that waves are fractal in nature. There are waves within waves and then even larger waves. Obviously there would be the wave which is most suited to the timeframe you are trading but I would assume that different traders might get different results from their analysis based on the particular wave they are looking at?
> Is there such a thing as primary anf secondary waves or something of the like?




Spend a few hrs looking around here.

http://www.elliottwave.com/introduction/apply_elliott_wave_principle.aspx


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## pavilion103 (18 May 2011)

tech/a said:


> Spend a few hrs looking around here.
> 
> http://www.elliottwave.com/introduction/apply_elliott_wave_principle.aspx




That will be handy

Thanks


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## IFocus (18 May 2011)

pavilion103 said:


> 1. If I am normally trading daily charts does that mean that knowledge of the trend/support/resistance areas in weekly charts is of value? and probably sufficient?
> 
> 2. It appears to me that waves are fractal in nature. There are waves within waves and then even larger waves. Obviously there would be the wave which is most suited to the timeframe you are trading but I would assume that different traders might get different results from their analysis based on the particular wave they are looking at?
> Is there such a thing as primary anf secondary waves or something of the like?




Don't get to hung up on the wave thing, well worth studying but keep it simple IMHO.

Back to measuring trend strength. Check out ILU chart with XMJ

I always check the weekly, look left all the time ideally check to see where price in the scheme of things.  Often there's nothing to see.

Example below of a quick trade Monday on the down sentiment for the day got the daily and weekly wrong way around click on charts for better viewing

hope this helps

.


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## pavilion103 (20 May 2011)

How much less are people trading in the current market. Being completely new to trading I'm curious to know how much market activitiy is impacted in a flat market. Is it 50% of usual or 25% of usual etc?

Also for a beginnger like me what is the best way to guage where the market is at in terms of trending and profitable opportunities? Is it simply a matter of looking at the All Ords or Aussie 200 (or any other indices/sectors) and saying, "Ok the market looks very flat, there mustn't be as much potential for profit. I will hold off until the market begins to trend again"?
(Keeping in mind that I am someone who doesn't really have a "feel" for the market yet)


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## pavilion103 (24 May 2011)

I am using a daily chart to trade. I intend to hold most of my trades between a few days and a month. 
I am not sure how close to zoom in on my daily chart (the one I use for my main anlysis). I.e. Should the main chart I look at only be the last 3 months, 6 months, etc?

Is there a rule of thumb e.g. if I'm looking to hold 1 month, then the past 3 months are most relevant etc?


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## IFocus (24 May 2011)

pavilion103 said:


> How much less are people trading in the current market. Being completely new to trading I'm curious to know how much market activitiy is impacted in a flat market. Is it 50% of usual or 25% of usual etc?
> 
> Also for a beginnger like me what is the best way to guage where the market is at in terms of trending and profitable opportunities? Is it simply a matter of looking at the All Ords or Aussie 200 (or any other indices/sectors) and saying, "Ok the market looks very flat, there mustn't be as much potential for profit. I will hold off until the market begins to trend again"?
> (Keeping in mind that I am someone who doesn't really have a "feel" for the market yet)




I wrote a heap of stuff then just deleted it, look at the XAO weekly 2009 to present we go up then side ways, currently grinding sideways ish

Then look at the XAO weekly 2004 to 2007......that's a trend.

Now look at the XAO daily see the last move up from March into April nice impulsive move now compare the current move down April to May how choppy it is.

The chop is where good traders get caught thinking they are trading gurus from the last clean move up and lose money standing aside at the moment is IMHO the correct position.

At this point its a guessing game do we go on down or do we bounce?

I have circled the last bounce showing price action and the volume showing buyers coming into the market hinting at a bounce which followed through to the upside.

Note the 2nd circles where we are now isn't showing the volume yet but a slight hint price wise.


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## IFocus (24 May 2011)

pavilion103 said:


> I am using a daily chart to trade. I intend to hold most of my trades between a few days and a month.
> I am not sure how close to zoom in on my daily chart (the one I use for my main anlysis). I.e. Should the main chart I look at only be the last 3 months, 6 months, etc?
> 
> Is there a rule of thumb e.g. if I'm looking to hold 1 month, then the past 3 months are most relevant etc?




Depends on your method / setup you want to trade.

I look at around 12 months 6 to 8 is fine its up to you.


The charts I just posted is what i look at.


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## IFocus (24 May 2011)

pavilion103 said:


> Is there a rule of thumb e.g. if I'm looking to hold 1 month, then the past 3 months are most relevant etc?




You should hold based on your method and how long the market lets you based on testing and SIM.

Your method will be based on risk / possible return for each position. The % win will be determined by the market cycle / trend which you are now on to.

The best measure for a market humming is when the guys trading penny stocks start talking about value of a company based on deposit yet to be drilled ten kilometers from a mother load rumored ...........you get the idea


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## skc (24 May 2011)

pavilion103 said:


> I am using a daily chart to trade. I intend to hold most of my trades between a few days and a month.
> I am not sure how close to zoom in on my daily chart (the one I use for my main anlysis). I.e. Should the main chart I look at only be the last 3 months, 6 months, etc?
> 
> Is there a rule of thumb e.g. if I'm looking to hold 1 month, then the past 3 months are most relevant etc?




The market doesn't care how long you are holding for... 

Perhaps 12 months is more appropriate, as past profit results or quarterly reports provide the latest facts that 'anchor' the share price (i.e. support / resistance).


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