Trends: Beginnings, Ends and Identification

[tech/a]

I posted this in the M/A thread.

Reading Price action is "technical analysis" also in my view.
I think though that the REAL reason for the question of M/A usage is one of identifying trends.
This is in itself the biggest question a trader faces.

Is a trend beginning/pausing/continuing/stopping?

How can I DEFINITIVELY know this at THE TIME its happening.

This should be treated as a topic in its own right so I have started a thread on it.
I wont have time to post up some example and discussion before the Weekend but thought there maybe others who would like to post their thoughts before hand.

So M/A's are commonly used to gain an idea of trend.
What and how do YOU use technical analysis to identify your trading ---trend--life of??

 

[samanne1]

I think the biggest problem with moving averages is that there is so much diversity in what moving average to use...

* if N is between 1 and 200, then you have 200 different averages that can be created

* should I use a simple, exponential, weighted moving average or "other"

* should I offset the moving average from the chart

* should I create the moving average from the the high, close, or close.

* typical moving include (in no particular order) 10, 50, 200, 34, 7, 18

* guppy has a MMA, Weinstein uses 30wk MA, others????

Note: there was a article on YTE recently about using a 34 period MA to determine directional bias using 3 MAs based on the H, L and close.

Most importantly... what is the MA ___actually___ telling me?

 

[Gringotts Bank]

Chart patterns. Beginnings - I like inverted H&S. Also cup/handles.

Continuations - I like flags/pennants, so does the market they rarely disappoint

Endings - Parabolic SAR indicator.

 

[Boggo]

Is a trend beginning/pausing/continuing/stopping?
How can I DEFINITIVELY know this at THE TIME its happening.

I don't think that you can ever definitely know, I am convinced though that it is possible to "see" where something is most likely to happen.
A lot of tech analysis reminds me of the days when I used to write some basic programs on an old Amstrad computer, probably the most used function was the 'if then' statement.
I look at situations such as the one below with a similiar 'if this happens then this is what is likely to happen next' approach, robust tech analysis methods seem to have that as a foundation.

First chart below, IF the W.3 is complete THEN we should see a reversal at an area that is predictable based on historic IF - THEN patterns.
IF not THEN we can expect etc etc.
IF that reversal occurs we should THEN be able to predict where the next IF - THEN sequence may occur.

This is really no different to what Gringotts is referring to, different methods but similiar approach, ie, IF a flag/pennant forms THEN I can expect etc.

Chart patterns. Beginnings - I like inverted H&S. Also cup/handles.
Continuations - I like flags/pennants, so does the market they rarely disappoint

There are no right ways that work all the time, just many ways that work most of the time.
My

(click to expand)

 

[Mistagear]

Markets meander, as the collective sentiment of those who chose to participate at that time,changes. Yet we humans try to create straight lines and fences to capture this partial randomness.
I think this human need to see things in definitive terms is in part responsible for the difficulty we all seem to have when determining a trend on a chart. Those humans who possess more "artistic flare" would probably see greater beauty in the randomness and be more willing to accept the rounded nature of what is, but from my experience, most humans interested in trading seem more the mathematical type brain and are natural, straight line fence builders.

With the noted short-comings of a box builder, I'll have a stab at explaining my methods in determining trends.

Chart bars/candles group themselves together in small bunches of temporary consensus on price direction, bunches are identifiable as having an eventual top and bottom pivot of price action, and most traders call this a "Swing".

Trend Beginning.

When the low pivot of the latest swing is higher in price than the prior pivot low, the trend is up.
If the pivot high of the latest swing is lower than the preceding pivot high, the trend is down.
When both current pivot high and low are within the range of the prior high/low range, the trend is undefined.

Trend Continuing.

When the latest swing range, heads in the dominant direction (current trend) and is greater than, or equal to, the recent average, the trend can be said likely to continue.. more so when the counter swing is less than the average swing.

Trend Ending.

Once he counter swings begin to have greater range than the ones that are in the direction of the trend, the trend is more likely to be ending.
Often, a trend will be broken by a single counter trend when the counter becomes 1.5 to 2 times that of the average swing. This dominating counter becomes the first stage of a new trend in the opposite direction.

Hope I got that right.. it's easier to look at it than explain in writing.

Cheers, M

 

[tech/a]

Some great replies so far
Mistagear can you post charts?

I will post my thoughts later but suffice to say
I believe this is where the (b)ART(b/) of Technical Analyis resides.
Some of which has been disclosed here.
I believe there is much more.

 

[Mistagear]

Here is a chart of RRL, selected only that Pav was requesting opinions on another thread.

Swings targets
which are shown by the "L" shaped lines on the chart,
where the horizontal part of the L is target price
and the vertical leg points back to the bar which triggered the creation of the target.

Red circles on chart in Apr/May show where swing targets failed to meet expected targets hinting of weakness in the prevailing trend.
Green circles June/July show counter trend targets under-achieving which adds weight to the trend continuing assessment. Note how the opposing up-swings were meeting their targets.
Sustainable trends are best when swings are fairly balanced, where neither swing exerts extreme pressure to one particular side. So best trends have regular counter swings of only slightly less distance then the ones going in the direction of the trend.

Will add comment on Pav's trade here to add context to how I view the trend and its possible continuation. As a short term swing trader, my trailing stop would be very close to the current price (say at today's open 282c )
reasoning,
the swing already beyond the average.. increasing chance of reversal.
Gaps often attempt closing.
volume today shows possible hidden supply (open,close, range comparison to prior day)
Last 4 downside swings have had zero penetration beyond the low of the trigger bar, trend may be becoming overbalanced (parabolic )

Using other longer term analysis not visible on chart, I have an existing target of 312c based on structural features triggered on 18/03/11.
Sometimes a trend will exhaust with a swing of multiple av swing distance, perhaps this leg could achieve my 312c tgt, so would have a strategy ready to re-enter if taken out yet price action showed may be worthwhile.
Alternately, if taken out by an appropriate counter swing, re-enter on the next trigger bar.

 

[Tanaka]

I use a type of Sine Wave. Its timing is not perfect but much better than anything else. This one is the ‘Better Sine Wave’ and was developed by Barry Taylor @ eminis-watch, it is derived from the ‘Hilbert Sine Wave’ by John Ehlers.

The sine wave is displayed below the chart and the support and resistance lines are created from the crossing actions of the waves and printed on the chart itself.

Note that the price action can break through the support or resistance and keep going, this is what Richard Wyckoff describes as ‘falling through the ice’ or ‘crossing the creek’. When this happens it will form a PB (pullback) before finally printing an END (end of trend).

 

[Boggo]

Trend Beginning.

When the low pivot of the latest swing is higher in price than the prior pivot low, the trend is up.
If the pivot high of the latest swing is lower than the preceding pivot high, the trend is down.
When both current pivot high and low are within the range of the prior high/low range, the trend is undefined.

Trend Continuing.

When the latest swing range, heads in the dominant direction (current trend) and is greater than, or equal to, the recent average, the trend can be said likely to continue.. more so when the counter swing is less than the average swing.

Trend Ending.

Once he counter swings begin to have greater range than the ones that are in the direction of the trend, the trend is more likely to be ending.
Often, a trend will be broken by a single counter trend when the counter becomes 1.5 to 2 times that of the average swing. This dominating counter becomes the first stage of a new trend in the opposite direction.

Hope I got that right.. it's easier to look at it than explain in writing.

Cheers, M

Is this what you mean ?

(click to expand)

 

[Wysiwyg]

Identifying a trend is completely duration relevant and I have yet to identify with 100% certainty a change in trend for any given duration. MA cross, MACD, oscillator peaks and troughs, Fibonacci give some indication of beginning or end but again this is completely duration, parameter, sentiment and interpretation relevant.

Trend for the All Ordinaries Index daily is up from inception yet down for the last 3 months.

 

[Mistagear]

Is this what you mean ?

(click to expand)

Boggo,
I do not mean support/resistance nor breakouts beyond previous pivots as you have identified on your chart.

I use some VSA principles and I nominate a bar as a reversal bar. I do a mathematical calculation based on average swings and this gives me a target price for the "new" swing.
On the RSG chart.
The red horizontal lines are my target in advance, based on the math calc from the bar I nominated as a reversal bar (blue line points to the signal bar).
The 2 circles on the chart point to events where price did not act as predicted. I assess these and at times make conclusions that a trend may be stronger/weakening etc, depending on the circumstances at the time.
Currently price has reached a nominated target, requires I tighten the stop significantly. I note the prior counter swing was weak, so price may continue on without retrace therefore only exit on first sign of weakness at the target price.
If Monday is strong, already I would have a new target of 143c
When price is close to a target, I'm wanting the stock to give me reason NOT to sell.

Cheers, M

 

[Tanaka]

The XAO over the last 12 months has played out quite well with the Sine Waves. They are printed at EOD as you see them here, I have not touched anything.

After the END (End of Trend) is printed it is often best to wait for the retest before entering a position. The retest here was printed 12/04/2011, along with the Heikin-Ashi changing colour.

I respect Boggo’s chart analysis. I believe his system to be profitable. I prefer the sine method as it is far less work. Lazy me

There are further notes on the chart below. Though I have used a daily chart here, I use the Sine intraday mostly.

 

[Wysiwyg]

The XAO over the last 12 months has played out quite well with the Sine Waves. They are printed at EOD as you see them here, I have not touched anything.

Do you mean the sine waves touched 100 and the price changed direction or the sine waves crossed and the price changed direction?

After the END (End of Trend) is printed it is often best to wait for the retest before entering a position. The retest here was printed 12/04/2011, along with the Heikin-Ashi changing colour.

So you say enter when that previous high was retested and broken on the 12/04/2011? I had a look at your chart expanded and could not see when the price pivoted or as you suggest, the short term trend ended.

 

[Tanaka]

Do you mean the sine waves touched 100 and the price changed direction or the sine waves crossed and the price changed direction?

The direction of the price will change near the crossing of the sine waves (i'm not saying it's perfect), sometimes just before or just after, usually after as in the example 12/04/2011, the support resistance lines are part of he indicator and the formula is locked by the developer (his secret) but the support resistance lines appear to print when there is some sort of momentum change.

So you say enter when that previous high was retested and broken on the 12/04/2011? I had a look at your chart expanded and could not see when the price pivoted or as you suggest, the short term trend ended.

The white lines above the the price started on the 12/04/2011 the actual crossing of the sine you can see happened 04/04/2011, like I said it appears to be programmed to display the resistance line once a shift in momentum has happened, if you look at the heikin-ashi candle formation on the 12/04/2011 it shows a clear change in market dynamics.

I wish I knew the codings of the indicator but they are locked. If you want to know more have a look at http://emini-watch.com/ I am not selling his indicators, I am a customer/follower of Barry Taylor's work.

 

[Wysiwyg]

The direction of the price will change near the crossing of the sine waves (i'm not saying it's perfect), sometimes just before or just after, usually after as in the example 12/04/2011, the support resistance lines are part of he indicator and the formula is locked by the developer (his secret) but the support resistance lines appear to print when there is some sort of momentum change.

Okay with that indicator and had a look at the emini-watch site. Thanks.

 

[Boggo]

Boggo,
I do not mean support/resistance nor breakouts beyond previous pivots as you have identified on your chart.

If Monday is strong, already I would have a new target of 143c

Cheers, M

OK and yes, 143 is now a target area since 131 got taken out, likely target is near 150 ??? Stop is still at 119.

Open to opinions ?

(click to expand)

 

[tech/a]

Some great replies so far
Mistagear can you post charts?

I will post my thoughts later but suffice to say
I believe this is where the (b)ART(b/) of Technical Analyis resides.
Some of which has been disclosed here.
I believe there is much more.

Some excellent posts.
Many share a similar view to my own.
I dont use any Oscillators or Indicators other than Volume in my Discretionary trading.

****In Systems trading I do use Oscillators and Indicators.****
The reason being is that I can see very clearly that the application of an oscillator or indicator in a formula to a set of trades WILL return a likely result of X if applied to the same market in similar market conditions.

Discretionary trading doesn't have that luxury.
But you can skew trades in your favor.

I'm a strong believer in Overall analysis.
It can be pretty easy to determine a viable signal after a few minutes marking up a chart.

I have 3 Ps I adhere to and find that by being selective with trade signals my ability to take quick trades which often develop into longer trades increases markedly.R/R is my key concern in EVERY trade.

Not in the sense of expected Reward for Risk but how can I Minimize risk by position sizing athletics and maximize return by selecting trades which offer best analysis for a continuation in the direction of my trade. Then--- The R/R will take care of itself.Without sound analysis this cannot take place.

Here I introduce the first mark up of a chart.
One I wouldn't trade.FMG---not as of today anyway!
The next will be one I would trade.

You'll find in the end all will come together nicely.---well it does for me.

CLICK TO EXPAND

 

[tech/a]

Here is a good example of Structure and Pattern during an emerging trend.
I have marked up the chart for very short term trading.
The trade could still be held by a longer term trader following the notations I have placed upon the chart with reference to pattern.
These patterns are giving clues as the trend forms as to its likely hood of faltering or continuing.While it continues then traders should follow.
When it falters we need to ask
(1) is this a correction within the main trend
OR
(2) is this a likely termination of the current trend.

So far only (1) would be the answer so trades would still be open or pending in the case of very short term trades.
Will follow this stock going forward to see if I can show the unfolding story in any trend continuation or termination.

Next Chart will be position sizing and the challenge of maximizing Reward for risk.

 

[Mistagear]

Here is a good example of Structure and Pattern during an emerging trend.
I have marked up the chart for very short term trading.
The trade could still be held by a longer term trader following the notations I have placed upon the chart with reference to pattern.
These patterns are giving clues as the trend forms as to its likely hood of faltering or continuing.While it continues then traders should follow.
When it falters we need to ask
(1) is this a correction within the main trend
OR
(2) is this a likely termination of the current trend.

So far only (1) would be the answer so trades would still be open or pending in the case of very short term trades.
Will follow this stock going forward to see if I can show the unfolding story in any trend continuation or termination.

Tech, TVN interesting choice.
Where you have marked "tight consolidation, low supply" Does you analysis take into consideration, that this level of volume, despite being low supply in relation to recent upthrust bars, is actually 3x higher than previous average volume ?

Does the current level of volatility/range, being approx 1/3 the trading price, pose increased risk to capital perhaps beyond acceptable levels ?

Cheers, M

 

[Tanaka]

Great stuff, easy to follow tech/a.

I know this the aussie stock forums, but do you have an analysis of any U.S stock or U.S CME futures or aussie SPI, I'd love to compare my oscillator/indicators with your analysis. It's just that I'm not subscribed to ASX stocks with software I'm using with the sine waves.

cheers.