darwisy
Forex Moderator
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The following chart sequence shows a great example of how I define a change of trend. The chart is a 1-minute chart of the GBP/USD. The market and timeframe are irrelevant though. The concept applies to all markets and whichever timeframe you're using to define the trend. I just happen to currently use the 1-minute chart.
As a background to the price action we see price in an uptrend leading into a resistance area between 1.5796 and 1.5802. Momentum clearly slows as price makes three failed attempts to breach the area (1 x test of resistance and 2 x breakout failures), before finally breaking the swing low between breakout attempts 2 and 3.
I call this break of the swing low the "objective" change of trend.
"Objective" refers to the fact that there is no discretion involved. Price traded below the swing low - there is no doubt.
However, for me, a change of objective trend definition does NOT mean a change of trend.
I define a change of trend as requiring two components:
Price acceptance means seeing evidence of price continuing to trade beyond the point at which the objective trend definition changed. In this example, that would be continuation lower.
A reversal straight back through the point of objective trend definition implies a rejection of the potential trend change (and usually a beautiful trade opportunity back in the original trend direction).
This is an interesting example. As shown below, price stalls immediately following the objective change of trend as both bulls and bears find some balance.
From this point, a break higher would reject the objective trend change, leading to continuation higher for a fourth test of resistance. The uptrend would remain in force.
A break down will demonstrate price acceptance, confirming our "subjective" change of trend. The trend would then be considered down.
As seen below, a break downwards occurred from the area of price stall, confirming our change of trend.
As a background to the price action we see price in an uptrend leading into a resistance area between 1.5796 and 1.5802. Momentum clearly slows as price makes three failed attempts to breach the area (1 x test of resistance and 2 x breakout failures), before finally breaking the swing low between breakout attempts 2 and 3.
I call this break of the swing low the "objective" change of trend.
"Objective" refers to the fact that there is no discretion involved. Price traded below the swing low - there is no doubt.
However, for me, a change of objective trend definition does NOT mean a change of trend.
I define a change of trend as requiring two components:
- an objective change of trend; and
- price acceptance in this new area (what I usually refer to as a subjective change of trend)
Price acceptance means seeing evidence of price continuing to trade beyond the point at which the objective trend definition changed. In this example, that would be continuation lower.
A reversal straight back through the point of objective trend definition implies a rejection of the potential trend change (and usually a beautiful trade opportunity back in the original trend direction).
This is an interesting example. As shown below, price stalls immediately following the objective change of trend as both bulls and bears find some balance.
From this point, a break higher would reject the objective trend change, leading to continuation higher for a fourth test of resistance. The uptrend would remain in force.
A break down will demonstrate price acceptance, confirming our "subjective" change of trend. The trend would then be considered down.
As seen below, a break downwards occurred from the area of price stall, confirming our change of trend.
