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charcoalstick

How to Know End of a Trend

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We all bring knowledge to the table, lets keep it friendly fellas. :)

 

I agree. The point is to shed a little light on how to determine a change in trend, much less a reversal, not to trade pithy barbs. :)

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You can't expect the market to turn on this kind of "testing." You need to see: high volume, a large rally, then a test. Until this occurs, so called support and resistance has little to offer in identifying the end of a trend. There was no large rally here. This was an indication of secondary (additional) distribution (i.e., more selling and supply). Viewing it as "testing" is inaccurate. When I look for a change in trend, I don't just look at support/resistance on the last wave; that will only serve to make you a part of the Herd. Background, or context, is key.

 

Eiger

 

Thanks for your contribution Eiger. I don't agree that looking for S/R makes you "part of the Herd", because I doubt the majority of the herd looks at S/R, but anyhow... And as for your supplyline, I draw these lines in realtime, so I have to go on on what I see at that time. Your line can only be drawn across that swing point 4 days later (on the 10th), by which a reversal might have taken place long before that line is breached.

 

You said you wanted to see "high volume, a large rally, then a test".

Interestingly enough, yesterday we had all of those three elements - depending on your definitions of "high" volume and how "large" a rally needs to be.

 

The action in the last hour on the e-minis yesterday looked like a selling climax to me, and I attribute more importance to this since it didn't just occur in the middle of nowhere, but on support from a while back.

 

Let me show you some charts of the ES, as I think that's the market you trade most. Not that it matters, because the NQ showed a similar pattern.

 

First we go back and try to find where important buying took place in the past. Important enough to reverse price. This happened from 11-15 April, about two months ago. The middle of this zone is 1331.

 

attachment.php?attachmentid=7082&stc=1&d=1213343347

 

Next, we look at the ES action of yesterday (4 hour chart):

 

attachment.php?attachmentid=7080&stc=1&d=1213342617

 

Now, let's assume we didn't have support drawn there and we go back to Wednesday. Unless you had your eye on support, a trader would be looking for longs from 1340 I think.

 

attachment.php?attachmentid=7078&stc=1&d=1213342617

 

Now let's have a look at yesterday, this is a close-up, albeit a 5-minute chart instead of a 1-minute. Do we have "high volume, a large rally, then a test" and is this alone enough to take a long, or not? Or do you wait for the supplyline to be broken before taking a long?

 

attachment.php?attachmentid=7081&stc=1&d=1213343233

 

Perhaps, instead of doing some hindsight analysis - mea culpa - it might be interesting to know what you - or anybody else - would be looking for next. What elements would signal an "end of the trend"? Are we going to wait for a rally back to resistance, before a test at support? Is this an end of a trend of just a temporary change in momentum?

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You neglected to point out the hinge which you posted in real time yesterday (though the post was of the NQ, and the ES hinge is not quite as pretty, the elements are nonetheless there). And the move out of that hinge was worth around 20 ES points. I bring this up because someone short into that hinge might have thought that the "trend" was "over". It was, however, a springboard into a further decline, which one might not even notice had he not known what to look for.

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May as well post this now before it becomes hindsight. :)

 

I've used bigcharts since that's available to everybody. I've also stuck with the S&P in keeping with FW's post.

 

attachment.php?attachmentid=7083&stc=1&d=1213360943

 

Note here that there are several trading ranges (or "congestions" or "consolidations" if one considers them too narrow to trade) on the way down from the top. Some of them act as support or resistance to subsequent ranges. What is unusual about yesterday is that it "broke out" of the previous range, but then fell through it to end up below it, which is where we are now. The question one has to ask himself, then, as he prepares for the day is how all those people who bought the breakout and didn't get out now feel about price coming back into that trading range and whether they are going to continue to hold their losing trades or get the hell out at the first opportunity to come anywhere near breakeven. This is, after all, the nature of trend in general and support and resistance in particular.

 

As to trend itself, it's helpful for the trader to ask himself whether he's addressing trend or directional moves since the two are not necessarily the same thing. Joseph, in post 11, attempted to clarify this, and making these distinctions may help the trader to organize his thoughts. There can be many directional moves within a trend, some going with the trend and some going against it. Whether a given directional move is profitable or not depends on its power and its extent (yesterday's opening long trade, for example). But determining whether or not a directional move has begun or ended is not the same as determining whether or not a trend has begun or ended.

 

To a large extent, determining whether or not a trend has ended and reversed is largely a matter of intellectual curiosity since -- as charcoal pointed out -- by the time one has determined the trend has reversed, it can be far too late to enter. Here is a repost of the above chart with trendlines:

 

attachment.php?attachmentid=7084&stc=1&d=1213360994

 

Note here that the trend is clearly not over, but there are many directional moves that are technically counter-trend but nonetheless profitable. Note also, however, that momentum has slowed dramatically, which is generally a precursor to trend reversal.

 

So, does one want to pinpoint the "end of the trend" and nail that reversal? Even if he was able to do so, where would he exit? If he's going for only a few points on his trade, why bother worrying about it? On the other hand, if he's more concerned about (a) the likelihood of a directional move and (b) its direction, he has more options available to him, all of which are more pertinent to real-time trading than concerns about how to determine the end of the trend and the point of trend reversal.

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It's a shame not more people had replied before the markets opened, as probably a lot of people will now be commenting "yeah I saw it coming, the markets would go up..."

 

But the analysis is still there, if anyone wishes to add something and for me there was sufficient enough reason to go long today (incidentally, live entry posted in the trading log thread).

 

You neglected to point out the hinge which you posted in real time yesterday (though the post was of the NQ, and the ES hinge is not quite as pretty, the elements are nonetheless there). And the move out of that hinge was worth around 20 ES points. I bring this up because someone short into that hinge might have thought that the "trend" was "over". It was, however, a springboard into a further decline, which one might not even notice had he not known what to look for.

 

Good point about the hinge but, as you pointed out, it was not as clean and sweet as on the NQ. Which is one of the reasons why I prefer to trade all the minis so I can take the best signal available out there... Thanks for posting the ES charts.

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Actually, there were perfectly good short trades in both. The market didn't turn until 15m later.

 

But that's the nature of RT trading. Rather than wonder about what traders are going to do, you instead watch them do it. :)

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It's a shame not more people had replied before the markets opened, as probably a lot of people will now be commenting "yeah I saw it coming, the markets would go up..."

 

But the analysis is still there, if anyone wishes to add something and for me there was sufficient enough reason to go long today (incidentally, live entry posted in the trading log thread).

 

 

 

Good point about the hinge but, as you pointed out, it was not as clean and sweet as on the NQ. Which is one of the reasons why I prefer to trade all the minis so I can take the best signal available out there... Thanks for posting the ES charts.

 

Based on my UVOL/DVOL setup (http://www.traderslaboratory.com/forums/f34/nyse-up-volume-uvol-down-volume-4019.html) I was pretty damn sure there would be a upside. Of course this post after the fact can be questionable. I could dig up a chat/IM with a time stamp but I have nothing to sell or prove. ;)

 

The above being said where I expected an upside, I'm now paper short the SPY as it seems to be getting sold at these levels. This is 1000% against what the UVOL is telling me right now but I think they are selling into the rally so their sales show as UVOL.

 

JMHO

 

Added---

About $123 for my cost basis in case that comes into question. :)

Edited by MC

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Based on my UVOL/DVOL setup (http://www.traderslaboratory.com/forums/f34/nyse-up-volume-uvol-down-volume-4019.html) I was pretty damn sure there would be a upside. Of course this post after the fact can be questionable. I could dig up a chat/IM with a time stamp but I have nothing to sell or prove. ;)

 

The above being said where I expected an upside, I'm now paper short the SPY as it seems to be getting sold at these levels. This is 1000% against what the UVOL is telling me right now but I think they are selling into the rally so their sales show as UVOL.

 

JMHO

 

Added---

About $123 for my cost basis in case that comes into question. :)

 

I posted what I did in order to address the question of why price turns where it does when it does rather than suggest a trade. It seems that this was in large part the purpose of FW's post as well. However, this may not be what charcoal is looking for. Perhaps he'll chime in and state whether this is off-track or not.

 

Edit: Incidentally, your comment about shorting because you sense traders selling into the rally is a good example of what I mean by making decisions based on what one sees rather than on what one believes should happen or ought to happen.

Edited by DbPhoenix

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I posted what I did in order to address the question of why price turns where it does when it does rather than suggest a trade. It seems that this was in large part the purpose of FW's post as well. However, this may not be what charcoal is looking for. Perhaps he'll chime in and state whether this is off-track or not.

 

Edit: Incidentally, your comment about shorting because you sense traders selling into the rally is a good example of what I mean by making decisions based on what one sees rather than on what one believes should happen or ought to happen.

 

Simply...I try to read the psych behind the chop forming and the candles reaction to the professional volume (not retail traders) at what I defined as key resistance. It's an odds game and I can guarantee nothing just as others cannot. As good as one may be they're just a speculator along with the rest of us. Unless you control enough money to move the market that is, if not you're retail in my eyes. :)

 

I had both going on, I first saw a bit of psych I thought I could exploit. Then I picked entry and stop/target orders based on what I believe should happen. Of course theres the last lot, a free trade should it do something drastic. ;)

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Simply...I try to read the psych behind the chop forming and the candles reaction to the professional volume (not retail traders) at what I defined as key resistance.

 

And, as it turns out, the potential resistance offered by yesterday's trading range was not too formidable, nor was yesterday's high. However, the potential resistance offered by the preceding trading range, which is more formidable given that it occupies a day and a half (Monday thru Tuesday), appears to provide that key resistance you were looking for.

 

Does this mean the downtrend is over (if there was one)? Or that there's been a reversal? Or that we're now in an uptrend? Does it really matter? One can easily miss the directional moves by focusing too much on "trend".

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And, as it turns out, the potential resistance offered by yesterday's trading range was not too formidable, nor was yesterday's high. However, the potential resistance offered by the preceding trading range, which is more formidable given that it occupies a day and a half (Monday thru Tuesday), appears to provide that key resistance you were looking for.

 

Does this mean the downtrend is over (if there was one)? Or that there's been a reversal? Or that we're now in an uptrend? Does it really matter? One can easily miss the directional moves by focusing too much on "trend".

 

I wasn't looking at yesterday for resistance so much as the weeks beginning chop. I cannot tell if your being positive or negative towards my posts quite honestly. Are you agreeing with me or correcting me?

 

Perhaps let's move to PM if you want to advise me, I feel I'm hijacking the thread now as the trade entry wasn't trend based, though my exit will be.

 

Thanks,

MC

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I wasn't looking at yesterday for resistance so much as the weeks beginning chop. I cannot tell if your being positive or negative towards my posts quite honestly. Are you agreeing with me or correcting me?

 

Perhaps let's move to PM if you want to advise me, I feel I'm hijacking the thread now as the trade entry wasn't trend based, though my exit will be.

 

Thanks,

MC

 

I'm agreeing with you. You're putting into practice and profiting from the ideas I've been posting here and elsewhere. And the week's "beginning chop" was the prior resistance I was referring to. In other words, there are frequently several levels of support or resistance that require attention. The fact that price gets there means nothing in and of itself. What matters is how price (traders) behaves there.

 

Today, one could expect some resistance from the bottom of yesterday's range, then the top, but all that was taken care of prior to the open. Next level was yesterday's high, but that didn't provide too much of a barrier either. Next level was the Monday-Tuesday chop, which is where price finally found some serious resistance. You picked up on that, and good for you.

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I'm agreeing with you. You're putting into practice and profiting from the ideas I've been posting here and elsewhere. And the week's "beginning chop" was the prior resistance I was referring to. In other words, there are frequently several levels of support or resistance that require attention. The fact that price gets there means nothing in and of itself. What matters is how price (traders) behaves there.

 

Today, one could expect some resistance from the bottom of yesterday's range, then the top, but all that was taken care of prior to the open. Next level was yesterday's high, but that didn't provide too much of a barrier either. Next level was the Monday-Tuesday chop, which is where price finally found some serious resistance. You picked up on that, and good for you.

 

Pshewww, I'm glad I'm in good company then. It feels good to finally have things click. Still lots of work to do but I'm not even in for 2 years yet so I'm an infant.

:)

 

HiddenSelling.jpg

Again if someone feels I'm hijacking let me know. This was my trade from yesterday, it's not the END of the trend so much as knowing when the broad trend was holding up. They were shorting rallies and this was a prime setup I took (still paper trading though I have traded live for about a year prior). Curious if anyone has feedback.

 

Thanks again

 

Added---

An afterthought now...I was going to say the 200ma on 5 min was going to have price gravitate and test, though I know it's all BS now after the fact. ;)

 

Last edit---

Of course the above is out of context, one must look at Mon-Tues like we talked about already.

Edited by MC

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Does this mean the downtrend is over (if there was one)? Or that there's been a reversal? Or that we're now in an uptrend? Does it really matter? One can easily miss the directional moves by focusing too much on "trend".

 

Perhaps, but not focusing on trend alone can cause problems too.

You never know when a 'trend reversal signal' leads to a complete reversal or is only a temporary change in momentum.

 

I know this might be too much a classic or textbook definition, but today is a typical example of how reversing your position ends up in a losing trade.

 

Are there clues in price that the reversal is only short-lived? The easy thing to do is manage the trade, but that assumes one is already in a short position. Just for the record, all of this is hypothetical because I was neither long nor short on this instrument (YM) today (June 17).

 

First chart:

attachment.php?attachmentid=7123&stc=1&d=1213721101

 

So we have (a) support, (b) at 1647 looks like a test of support on lower volume and a failure to make a lower low (potential strength), © a break of the trendline and (d) a break above the last swing. Both © and (d) could be considered as long entry signals (the blue dots).

 

Second chart, this is what happened next:

attachment.php?attachmentid=7124&stc=1&d=1213721555

 

I consider the break of the demandline as a signal that price need more time to consolidate before heading up again. I think by going long at the blue dot, the trader is hoping that price will run up to resistance, but - although I've seen it happen on several occasions - the odds seem much higher that price will need some time in order for a sustainable reversal to take place.

 

I take it that only by paying close attention to what price does and making discretionary decisions one can manage his trade to the best of his abilities...

 

But my question to those who trade off price (of price/volume) alone, are there other elements I'm missing that help raise the odds when putting on this kind of trade?

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Why are you calling 240 "support"?

 

It's a level that's been important in the past:

- yesterday's action primarily (230-240)

- it was also the midpoint of the hinge on the 12th

 

So it's what I like to call 'potential 'minor support'... Below 240, I have 180 as more important support, which seems to provide a more decent reversal as we speak...

 

Edit: Hmm... I think I might be paying too much attention to those minor levels. :idea:

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If you go through the process I just detailed on the Cajas thread, you'll find that support is considerably lower.

 

Focusing on 240, though, may be the cause of the misinterpretation of the "test", seeing what one wants to see rather than what's there.

 

First, there's nothing particularly climactic about any of the volume, though the volume does serve to slow down the downward movement and eventually to stall it. Plus the volume on the "test" is higher than that on the initial bounce. Plus there's no particular muscular volume on the upside. All of this suggests a rest, not a reversal. Breaking the TL is sufficient reason for lightening up a short, but I see no reason to go long here.

 

All of this is hindsight, of course, but anybody wanting to learn this stuff in order to apply it to intraday trading is just going to have to trade intraday.

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Interesting last few posts. Minor S/R levels can suck you in, that is easily surmountable with discipline. Large clusters or zones of 'major' S/R can be a bit more challenging.

 

Firewalker that was yesterdays (Tuesdays) action I would guess? By my definition strictly speaking it would have been the end of trend. Of course just because a trend 'ends' does not mean it can not resume. There where clues that there was not enough buying interest but thats another story I guess.

 

If you are rigorous and consistent does it matter how you define the end of a trend?

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If you are rigorous and consistent does it matter how you define the end of a trend?

 

Probably not that much, if you are consistent about what you do... On the other hand I think you need to have clearly defined definitions for your own, otherwise you could end up second-guessing yourself in real-time, and that's probably why a lot of people start doubting their trades or not following their plan.

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Yes, and even having rigorous definitions dosen't guarantee you won't second guess yourself anyway! Without that framework you are adrift without a paddle. The 'corrective' 'trend' in your last charts is a good example. I 'felt' that it was a correction but my framework said that the down trend was over (for now at least).

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FW,

 

In reply to your question about end of trend and placing odds in your favor: well I am primarily a discretionary trader and This is how I saw the market on the 16th and 17th.

 

We had 330 - 360 as resistance. Price had found support at 240 on the 16th but was clearly being rejected at 270, we finally did make it to 320 and sell-off ensued. Premarket on the 17th we could not close above 360, we broke below 320 and 270, the trend gradient was sharply down, the 1st retrace to 300 was deep, we found support at 270 but broke down to 240, previous day's support. We retraced again to 270 and rejected very sharply, this was evidence enough that we would now be moving down to the next support level i.e 180, which we did. We found support there and retraced deeply agin this time to previous day's low at 220 which was again rejected and the next support level would now be 100.

 

Let's say you did take a long at 240 which was infact a contratrade, your 1st scaleout would be near the 270 region and eventually a stopout on the trailers for breakeven. One would then wait for a pullback after 240 broke for an entry short - this would be around the 210 region as 220 was rejected on a down trending day, traget one would be 180 and next target would be at 100.

Having said all that - my trade was a long at 250 and stopped out for b/e but we live and learn...

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However strategies for possible end of trend can be developed ... you must be aware of the fact that a trend has come to an end by my definition only if actual trends last specific top (for decreasing trend) / bot (for increasing trends) is broken.

NOTE:

top = definition of top (this can differ at traders/strategies ... ) what to consider?

bot = definition of bottom (this can differ at traders/strategies ... ) of corse the inverse of top as definition (likely :) )

broken= definition of broken (this can differ at traders/strategies ... )

 

 

 

Here you reffer already to check for trend is comming to an end. Here you can only rely on your technical analises (my advice), because for possible ends of trend you can find several strategies ... but all these are not for general use (my oppinion) ... it can differ from tend to trend and also from time frame to time frame ... but these are usually called pullbacks until the end of the trend signal appears (see above).

 

So based on all above your question can also be reformulated like:

- from were a pullback of a trend starts?

- out of wich pullback should we see a possible end of trend?

 

:doh: ...

Ideas/agree/disagree? :\

 

yeah, read jesse livermorre look at the pullback to see whether the trend is ending though the book didnt shed much light how he did it..

think much of the discussion has been on retesting of resistance/support..now how about the pullback, what clue can we get from the price/vol during the pullback to tell us whether the trend will resume?

A common knowledge is light vol indicate high chance the trend will resume...anything deeper than that?

thanks!

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When you are stopped out, or have a margin call, I should think...

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This marks a sharp jump from the 35% risk estimated just last month—and more than double January’s 20% projection. J.P. Morgan issued a bleaker outlook, now forecasting a 60% chance of recession both in the US and globally.   Global Leaders Respond as Trade Tensions Deepen   The dramatic market sell-off was triggered by China’s sweeping retaliation to a new round of US tariffs, which included a 34% levy on all American imports. Beijing’s state-run People’s Daily released a defiant statement, asserting that China has the tools and resilience to withstand economic pressure from Washington. ‘We’ve built up experience after years of trade conflict and are prepared with a full arsenal of countermeasures,’ it stated.   Around the world, policymakers are responding to the growing threat of a trade-led economic slowdown. Japanese Prime Minister Shigeru Ishiba announced plans to appeal directly to Washington and push for tariff relief, following the US administration’s decision to impose a blanket 24% tariff on Japanese imports. He aims to visit the US soon to present Japan’s case as a fair trade partner.   In Taiwan, President Lai Ching-te said his administration would work closely with Washington to remove trade barriers and increase purchases of American goods in an effort to reduce the bilateral trade deficit. The island's defence ministry has also submitted a new list of US military procurements to highlight its strategic partnership.   Economists and strategists are warning of deeper economic consequences. Ronald Temple, chief market strategist at Lazard, said the scale and speed of these tariffs could result in far more severe damage than previously anticipated. ‘This isn’t just a bilateral conflict anymore — more countries are likely to respond in the coming weeks,’ he noted.   Analysts at Barclays cautioned that smaller Asian economies, such as Singapore and South Korea, may face challenges in negotiating with Washington and are already adjusting their economic growth forecasts downward in response to the unfolding trade crisis.           Oil Prices Sink on Demand Concerns   Crude oil continued its sharp slide on Monday, driven by recession fears and weakened global demand. Brent fell 3.9% to $63.04 a barrel, while WTI plunged over 4% to $59.49—both benchmarks marking weekly losses exceeding 10%. Analysts say inflationary pressures and slowing economic activity may drag demand down, even though energy imports were excluded from the latest round of tariffs.   Vandana Hari of Vanda Insights noted, ‘The market is struggling to find a bottom. Until there’s a clear signal from Trump that calms recession fears, crude prices will remain under pressure.’   OPEC+ Adds Further Pressure with Output Hike   Bearish sentiment intensified after OPEC+ announced it would boost production by 411,000 barrels per day in May, far surpassing the expected 135,000 bpd. The alliance called on overproducing nations to submit compensation plans by April 15. Analysts fear this surprise move could undo years of supply discipline and weigh further on already fragile oil markets.   Global political risks also flared over the weekend. Iran rejected US proposals for direct nuclear negotiations and warned of potential military action. Meanwhile, Russia claimed fresh territorial gains in Ukraine’s Sumy region and ramped up attacks on surrounding areas—further darkening the outlook for markets.   Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Andria Pichidi HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
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