How Do You Determine the Long-term Trend?

[BlueHorseshoe 10]

How do you determine the long-term trend on a daily price chart?

 

Do you currently consider the S&Ps to be in an uptrend?

 

Do you employ long-term trend filters in your trading?

[DbPhoenix 42]

  BlueHorseshoe said:

How do you determine the long-term trend on a daily price chart?

 

Do you currently consider the S&Ps to be in an uptrend?

 

Do you employ long-term trend filters in your trading?

 

Depends on your timeframe. If a year, start at 1100. If two years, 1000. If 3+, 650+/-.

 

Db

[Obsidian 10]

  BlueHorseshoe said:

How do you determine the long-term trend on a daily price chart?

 

Do you currently consider the S&Ps to be in an uptrend?

 

Do you employ long-term trend filters in your trading?

 

I would say the same, that depends on your time frame

[BlueHorseshoe 10]

  mitsubishi said:

A lot of waffle i'm afraid in an attempt to answer a question(s) often asked..But i doubt you'll see many definitive answers to any question on a trading forum,only food for thought.

 

Thanks for your reply. I realise there's no definitive answer and just wanted to get an idea about how other traders think about this and try and challenge my own mindset. Your post is thought provoking and very helpful, so it's certainly not waffle!

 

Thanks

 

BlueHorseshoe

[MightyMouse 12]

It is a matter of timeframe. But, it rarely, "Vee's" to a new trend, so, I would say confidently that this is just a pull back in a major trend. Funds are still flowing and being encouraged to flow into the markets. The fed wants equity values to grow so that corporations have the equity to borrow against to create jobs.

[BlueHorseshoe 10]

  DbPhoenix said:

Depends on your timeframe. If a year, start at 1100. If two years, 1000. If 3+, 650+/-.

 

Db

 

Thanks for your reply.

 

In terms of timeframe, I personally hold positions for between 1 and seldom more than 5 days. I rely on both the directional slope of a moving average and price relative to a moving average as a trend filter, and was wondering what others do (including those who trade intraday). I've tested pretty much every technical concept of trend I've come across, and failed to find anything that is more effective as a mechanical measure than what I'm using (although I have found that a moving average of OBV can be pretty much equally effective).

 

So am I correct in thinking you're suggesting a fixed anchor price against which to measure whether the market is bullish or bearish? How would this anchor price be determined? And how often would it be revised?

 

Thanks for your thoughts.

 

BlueHorseshoe

[BlueHorseshoe 10]

  MightyMouse said:

It is a matter of timeframe. But, it rarely, "Vee's" to a new trend, so, I would say confidently that this is just a pull back in a major trend. Funds are still flowing and being encouraged to flow into the markets. The fed wants equity values to grow so that corporations have the equity to borrow against to create jobs.

 

Thanks for replying.

 

I think that you mentioned the fact that markets rarely form 'V' reversals in response to a question I asked previously - a remark that I investigated and found to be very helpful.

 

I would, if forced to make prognostications, agree with you that we are currently seeing nothing more than a more significant pullback in an uptrend. One clue for me (although this is not information I incorporate into my mechanical strategy or act upon) is that each day the market moves significantly lower we see significant volume.

 

My very simple interpretation of volume in the equity indices (which is based upon my own quantitative analysis of market data and isn't really something I want to debate with anyone) is that volume is significantly biased to the long side. Hence I expect significant volume as price falls before reversing to the upside, as buyers step in and start accumulating at 'bargain' prices, and diminishing volume as price rises prior to reversing to the downside, as buyers lose interest when prices have moved to unreasonably high levels. I completely ignore sellers in this equation - I think that the indices are driven by buyers, many of whom will hold long positions for decades (now when did you ever hear of anyone holding a short position for decades?). I realise many will disagree with this interpretation of volume - I can only point out that the data supports what I am saying.

 

Having said all this, my last attempt to get long was not profitable!

 

Your post raises another question: is it possible to determine the trend in higher timeframes effectively without considering some sort of fundamental information?

 

Cheers,

 

BlueHorseshoe

[DbPhoenix 42]

  BlueHorseshoe said:

Thanks for your reply.

 

In terms of timeframe, I personally hold positions for between 1 and seldom more than 5 days. I rely on both the directional slope of a moving average and price relative to a moving average as a trend filter, and was wondering what others do (including those who trade intraday). I've tested pretty much every technical concept of trend I've come across, and failed to find anything that is more effective as a mechanical measure than what I'm using (although I have found that a moving average of OBV can be pretty much equally effective).

 

So am I correct in thinking you're suggesting a fixed anchor price against which to measure whether the market is bullish or bearish? How would this anchor price be determined? And how often would it be revised?

 

Thanks for your thoughts.

 

BlueHorseshoe

 

Your original question was "how do you determine the long-term trend", not "how do you determine change of trend or trend reversals". Getting into all of that is considerably more complicated. Fortunately, none of this is particularly relevant to your trading situation since your timeframe is so brief.

 

If your concern is primarily a determination of whether the market is bearish or bullish in your timeframe, you're more likely to profit from looking at support and resistance zones than focusing on "trend". If price is approaching one of these zones, you can look for the kinds of activity that will tell you what to do. If it isn't, then you can play the intraday trend(s).

 

All of which is very general, but without knowing what you trade, how you trade it, what you look for, how you make your decisions, etc., general is about as far as one can go without giving specific instructions for trading some other way, a way which may not be right for you.

 

Db

[SIUYA 11]

  BlueHorseshoe said:

How do you determine the long-term trend on a daily price chart?

 

Do you currently consider the S&Ps to be in an uptrend?

 

Do you employ long-term trend filters in your trading?

 

1...I just look at it and trust my first impressions.(the long term being maybe 1-2 years)

2...I am not currently looking at it, but at a quick glance. Yes, but I dont like the overall market fundamental context and sentiment, and I dont like the fact that the pullback has been quite violent after making new highs in April. That to me is always worrying.

3...yes in a general sense, but this is probably where i throw in the subjective fundamental viewpoint. I have tried a lot of filters, but they miss a lot and lag too much, unless you are trading that time frame. (Even the big instos dont hold for decades. They may match indexes but they turn over their portfolios much more than that, with re-weightings. Too much many passive investors would argue)

 

As per most users it depends on the time frame you are trading, the strategy you want to apply as to how you want to use this.

[BlueHorseshoe 10]

  DbPhoenix said:

Your original question was "how do you determine the long-term trend", not "how do you determine change of trend or trend reversals". Getting into all of that is considerably more complicated.

Db

 

You're right - I got sidetracked into discussing reversals with MightyMouse's response.

 

  DbPhoenix said:

If your concern is primarily a determination of whether the market is bearish or bullish in your timeframe, you're more likely to profit from looking at support and resistance zones than focusing on "trend". If price is approaching one of these zones, you can look for the kinds of activity that will tell you what to do. If it isn't, then you can play the intraday trend(s).

Db

 

My timeframe is daily. Rather than look for support or resistance on a chart, however, I look for tension between short term price movement and long term price movement (the prevalent trend), and trade on the assumption that more often than not price will revert to the former trend. I look at nothing more than the speed and intensity of movement counter to the trend - the more violent and extreme these appear to be, the more interested I am in taking the other side of them. Therefore how I determine trend will, in theory, play a crucial role in whether I am successful over the long run.

 

  DbPhoenix said:

All of which is very general, but without knowing what you trade, how you trade it, what you look for, how you make your decisions, etc., general is about as far as one can go without giving specific instructions for trading some other way, a way which may not be right for you.

Db

 

General is fine, thanks - I was just hoping for a general discussion of how others approach the idea of determining trend, rather than a discussion of my own strategies, which I am sure would be very boring and not beneficial to anyone else.

 

Thanks,

 

BlueHorseshoe

[BlueHorseshoe 10]

  SIUYA said:

(Even the big instos dont hold for decades. They may match indexes but they turn over their portfolios much more than that, with re-weightings. Too much many passive investors would argue).

 

Thanks for your reply, SIUYA. While I don't really know what the institutions do well enough to debate it, I would argue that, based upon the data, the equity indices do not behave in a symmetrical fashion. I can only imagine that this is because there are more participants (of whatever type) interested in buying them than in shorting them.

 

BlueHorseshoe

[DbPhoenix 42]

  BlueHorseshoe said:

My timeframe is daily. Rather than look for support or resistance on a chart, however, I look for tension between short term price movement and long term price movement (the prevalent trend), and trade on the assumption that more often than not price will revert to the former trend. I look at nothing more than the speed and intensity of movement counter to the trend - the more violent and extreme these appear to be, the more interested I am in taking the other side of them. Therefore how I determine trend will, in theory, play a crucial role in whether I am successful over the long run.

 

.....

 

General is fine, thanks - I was just hoping for a general discussion of how others approach the idea of determining trend, rather than a discussion of my own strategies, which I am sure would be very boring and not beneficial to anyone else.

 

Thanks,

 

BlueHorseshoe

 

Rather than make up charts that would only duplicate what I've already done, I'm going to suggest that the "Trend" thread in the Wyckoff Forum may be of interest to you, particularly if you're not happy with the way you're determining trend. Or not. But it's not going anywhere, so keep it in mind for when you have a slow Saturday.

 

As for others' strategies and tactics, I'm always interested, as long as it's not gobbledygook (which is, unfortunately, too often the case). So don't be shy on my account .

 

Db

Edited May 22, 2012 by DbPhoenix
Link added

[Tams 20]

  bluehorseshoe said:

how do you determine the long-term trend on a daily price chart?

 

Do you currently consider the s&ps to be in an uptrend?

 

Do you employ long-term trend filters in your trading?

 

200 sma !

[SIUYA 11]

  BlueHorseshoe said:

Thanks for your reply, SIUYA. While I don't really know what the institutions do well enough to debate it, I would argue that, based upon the data, the equity indices do not behave in a symmetrical fashion. I can only imagine that this is because there are more participants (of whatever type) interested in buying them than in shorting them.

 

BlueHorseshoe

 

Unfortunately you will get a lot of gobbdlegook in this area of defining trend as there is a lot or room to maneuver in the long term . Tams has probably given you the simplest without any subjective element.

on the other point of equity indexes and their propensity to trend up....yes a whole debate can ensue.

I do think that different instruments and different markets do have different trending characteristics within a trend. It makes sense that they do in that they have different characteristics as a market, different constituents, different market forces and different market participants....so while a robust one size fits all trading plan and trend definition may be great, it may not make sense.

 

Sticking just to equities - the indexes are made up of only the surviving instruments, and depending on how they are built up - market cap, or other weighted, then only thoses that survice and thrive naturally become dominant. The participants are generally long only participants, the underlying assets are designed to be about transferring wealth from customers to shareholders () via dividends and growth, there are restrictions on shorting, etc; etc.

The big debate among equity fund investors is often about passive v active managers and the value they add, but even the passive ones often reweight, and the active ones still benchmark...

 

Anyway - off topic a bit.....however point is the same. defining trend long term IMHO should be based on something simple and robust, but the entries and exits might be more tailored to different markets.

[Obsidian 10]

  BlueHorseshoe said:

...Your post raises another question: is it possible to determine the trend in higher timeframes effectively without considering some sort of fundamental information?...

 

Yes...and I also think that fundamental information is not for day trading. If you are holding a positions for weeks-months, it should help though...

and the day that you determine the trend may be the day it reverses

[BlueHorseshoe 10]

  Tams said:

200 sma !

 

Thanks for your reply Tams, with your trademark eloquent brevity!

 

An SMA is what I currently use, as I have found absolutely nothiong that betters this in testing (I look at the slope rather than whether price is above or below the MA, however - an idea I took from the Stridsman book and also mentioned by Kaufmann).

 

Incidentally, I recently tested a trend indicator you posted on here which compared the value of an MA with its value N bars prior. Though effective, this still was not superior to an SMA.

 

So would you not be tempted to optimise the MA lookback at all? In the S&Ps, for instance, 200 periods was far from optimal over the last 10 years for most of the approaches I have tested.

 

BlueHorseshoe

[Obsidian 10]

Did you try ichimoku?

[SIUYA 11]

icimoku - at a guess will be much the same as a moving avg as all they really are is the mid point of the donchian channels offset.

I think they provide a good visual representation - so not to dismiss them Osidian, but I think they are often portrayed as a bit more than what they are , and they might offer less whipsaws as they are a bit more horizontal than MAs.....but thats all a guess. I would imagine the results would not differ that much.

I use more doncian levels (or higher highs, lower lows) than MAs as they give me clearer levels of price.

[Obsidian 10]

each trader got their own style of course

I just prefer ichimoku because I think trend, support and resistance concept is more accurate when you define as a zone more than a simple line.

[SIUYA 11]

there is a good point Ob --- BH - can you test for zones using a computer, or is it it not binary enough (my brain cant think outside the box enough), I guess you still need a trigger of some sort.

[wrbtrader 10]

  BlueHorseshoe said:

How do you determine the long-term trend on a daily price chart?

 

Higher lows or lower highs that have not retraced the most recent reaction point.

 

  BlueHorseshoe said:

Do you currently consider the S&Ps to be in an uptrend?

 

No...it closed below the reaction point of April 10th back on May 9th.

 

  BlueHorseshoe said:

Do you employ long-term trend filters in your trading?

 

Yes via volatility analysis.

[BlueHorseshoe 10]

  Obsidian said:

Did you try ichimoku?

 

Hi Obsidian,

 

I have never really looked at Ichimoku. I seem to remember deciding it was very complicated at some stage, and I prefer simple, but if what SIUYA is saying and it is just the middle of a Donchian channel then that's straightforward enough. Thanks for the suggestion - definitely something I'll investigate further!

 

BlueHorseshoe

[BlueHorseshoe 10]

  SIUYA said:

there is a good point Ob --- BH - can you test for zones using a computer, or is it it not binary enough (my brain cant think outside the box enough), I guess you still need a trigger of some sort.

 

It's very easy to test a zone, as long as you are prepared to define its boundaries precisely (though the boundaries can obviously change from bar to bar.

 

So you could say 'if price is greater than X and less than Y and Z happens, then do P'.

 

Is this what you meant?

 

BlueHorseshoe

[BlueHorseshoe 10]

  Obsidian said:

the day that you determine the trend may be the day it reverses

 

And all trends, even those correctly identified must eventually reverse.

 

As things currently stand, I'm only usually wrong once at the end of the trend for this reason. Add in a few losses caused by premature entries during the trend, and I'm correct (profitable) about 7-8 times out of 10 within the typical S&P trend as I define it. I have now become quite accustomed to sustaining a significant loss after a string of smaller winning trades. So all this is fine, as things go, but problems occur when my determination of trend is incorrect, as then the inevitable losses associated with trend change often become sequential. EVEnly spread they aren't an issue at all, but clustered together I fear that sooner or later they may un-nerve me.

 

BlueHorseshoe

[SIUYA 11]

  BlueHorseshoe said:

It's very easy to test a zone, as long as you are prepared to define its boundaries precisely (though the boundaries can obviously change from bar to bar.

 

So you could say 'if price is greater than X and less than Y and Z happens, then do P'.

 

Is this what you meant?

 

BlueHorseshoe

 

I get the if..then statements for the computer but how do you actually use the zone to test it?

If the zone is defined by individual level then do you scale out within the zone or just use a re-entry into the zone - in which case it much the same as using something similar as a MA.

OR do you use the zone as an extra filter and say - only if this occurs withinin or above/below the zone.....or do you try and implement the whole "system"

thats all

 

i quite like these sites i stumbled on once before....not as much selling as some.

Main Page - IchiWiki - The Definitive Reference to the Ichimoku Kinko Hyo Charting System

Ichimoku Clouds - ChartSchool - StockCharts.com

 

as mentioned to me its just a combination of hhv, llv, and mid points with some offsets, and people sometimes (deliberately maybe) confuse it to be more than that. to make money out of it as opposed to using it to help visualise something then I think the same issues as using MA may arise.........but if it works for you then great.