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How to Determine the Direction of a Trend
Before you decide to go long or short, there are several criteria you should check:
I. Pick a time frame that you like to use as the trend time frame / chart.
An up trend on one time frame (eg: daily) can be a consolidation on the higher time frame (eg: weekly).It is also important to check direction from a bigger time frame to get the context of the overall trade.Check for the long term trend, intermediate trend, and short term trend. Know at what stage is the current price at your own time frame.Is the price in an up trend, sideways/consolidation, or down trend?
II. Check for trend.
There are multiple ways to check for a trend. Below are a few of them:
- Based on price action: A series of higher- highs and higher- lows for an up trend, a series of lower- lows and lower- highs for a down trend.
- Based on trend line /trend channel: Trendline and trend channel can act as a leading indicator. To draw the trendline, just connect the two lower-lows / pivot lows for an up trend and connect the higher-lows / pivot highs on the down trend.
- Trend Indicator: There are many popular indicators you can use to define trend: Moving average, MACD, Stochastic, RSI, etc. Most indicators are the lagging indicator. They lag the price. So the indicator should be used as the confirmation to filter when to get in and get out after you identify the trend using the price action.
Trend structure:
- Higher-highs and higher-lows or lower-highs and lower-lows are the building blocks of a trend. Supply and demand caused the price to fluctuate and form the higher-highs and higher-lows or lower-highs and lower-lows. – The price structure can also be the support and resistance area. – It can also become the objective entry and exit. – The price structure is the basis of trendlines and can exist on all time frames.
Trend reversal:
Breaking the trendline does not mean a trend is reversing. The price could do some consolidation or retracement and then continue the trend. Breaking the trendline could mean there is a trend change, and we must be prepared to act according to the price action after the trend-change situation. Trend reversal is a process; typically, you will see some pattern forming such as head and shoulder, double top / bottom, false breakout, etc. before the trend change occurs.
A simple method is usually the best; just use the price action and trend line to identify the trend and only use an indicator to confirm.
Contributed by Toyogo00, Lori, Iteng & FibMaster at
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