Hey guys, in this video i will show you fiveways to identify the dominant trend on a trading instrument, whether is a stock, a currencypair or a CFD, so you can stay on the right side of the market when you are day trading.
The first technique takes into account the200 EMA and 600 EMA on the 5 min chart.
We’ll use the 200-period exponential movingaverage as an indicator to determine the short-term trend and the 600-period exponential movingaverage to determine the medium-term trend.
600 EMA on the 5-min chart is the same with200 EMA on 15-min chart, so basically we are following the 200 EMA on the 5-min and 15-mincharts.
That’s a little trick to follow one of themost efficient moving average on 2 timeframes, without having to change charts.
So, on order to identify the trend, the 2exponential moving averages must not cross during the previous day or days, because asday traders, our aim should be to trade only the strongest trends.
If the EMAs will cross, then we will mostlikely enter a trading range.
Let’s take a look at this Visa 5 minuteschart.
If we want to identify the trend, we justhave to look back in the previous 1 or 2 days.
If the moving averages do not cross, we havea valid trend and we could start searching for long entries.
Here is a downtrend on the Verizon Communicationsstock.
Take into account that a moving average isa lagging indicator, and the 2 EMAs don’t predict new trends, just confirms the markettrends once they have been developed.
In this chart, we see no crossover betweenthem, and we can assume that we are in a downtrend.
When you see a crossover or multiple crossoversbetween the EMAs in the previous day, like in this Netflix chart, abandon the setup, because you will most likely enter the market when it’s in a range and go search for otherday trading opportunities.
The second technique takes into account themain central pivot point of the day.
Pivot points represent levels that are usedby floor traders to determine directional movement and potential support/resistancelevels.
They became popular once traders on the floorexchanges began to use them.
In order to identify the trend, i just focuson the central pivot point.
The central pivot point represents the intradaypoint of balance between the buyers and sellers and is usually where the largest amount oftrading volume takes place.
Here’s how i determine the main trend.
I prefer to compare the value of the mainpivot point with the value of the previous day.
If the current pivot point is higher thanthe previous one, i consider this a good indication of an upward trend and look only for longpositions If the current pivot point is lower than theprevious one, i consider taking only short entries, because we are in a potential downtrend.
I also take into account the distance betweenthe main pivots (the range between them) Pivots drawn with a larger distance betweenthem indicate a trending market Pivots drawn at a short distance one fromanother, indicate a possible range.
I avoid trading on markets where the mostrecent pivots are close, as it will most likely stay flat and offer low probability entries, like in this AT&T chart.
The third technique involves the Kumo cloudof the Ichimoku indicator.
The Kumo cloud offers a unique perspectiveof support and resistance, representing these levels based on price action.
The longer the price stays below/above theKumo cloud, the stronger the trend is • when the cloud is wide, the expected supportor resistance is strong.
• when the cloud is thin, the expected support/resistanceis weak.
If I want to see if the markets are trendingor not, i want the Kumo cloud to keep its color.
So, i want to see green in the last 1 or 2days, without any red, like in this exon mobile chart.
And here’s a great downtrend.
Observe the Kumo cloud keeping its red color, the price stay below the cloud and the cloud is pretty wide, meaning that the trend isa strong one.
When you see this on your charts that it’sa pretty strong indication that the market is in a range.
So, when the price breaks below and abovethe cloud and the cloud changes its color often search for better opportunities on otherinstruments.
The forth technique takes into account theADX line on the 30-min chart.
ADX is one the most reliable indicators toanticipate the beginning of new trends or a continuation of the current ones.
What I like about average directional movement(ADX) is the fact that it measures trend strength and shows trend direction at the same time.
When the ADX stay above 25 the level for severaldays, trend strength is strong enough for strategies involving trend following.
I check the ADX line in the previous 1-2 days, and if i see that it clearly stays above 25 level, we might have a good trend to ride.
Remember, that ADX in non-directional, doesnot distinguish between uptrends and downtrends.
So look for higher highs and lower lows andADX above 25 level for uptrends, like in this example.
And lower lows and lower highs and ADX above25 level for downtrends, as you see on this chart.
The fifth techniques takes into account theslope of the Keltner channel.
Keltner channel is a combination of an exponentialmoving average and the average true range indicator.
Keltner channel uses the average true rangeto determine the channel distance.
Keltner channel doesn’t predict new trends, just confirms the market trends once they have been developed.
An easy way to determine the main trend isto analyze the Keltner channel’s slope.
The Keltner channel slope is simply the directionof the channel plotted on the chart.
An instrument is considered to be in an uptrendwhen the Keltner channel’s slope is upward An instrument is considered to be in a downtrendwhen the Keltner channel’s slope is downward, like in this chart.
It’s also better for the price to stay aboveor below the channel, without touching it.
When the Keltner channel’s slope is flat, this is a signal that the market is in range.
In other words, no main trend is identifiedon the market.
You should avoid taking positions when thismarket condition is met.
Keep in mind that trend analysis is only onepart of the overall trading strategy you should employ to enter and exit trades.
It is never a good idea to enter a trade basedon one factor alone, which is why you must look for as much evidence as possible to confirma trade.
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Until next time.
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