The Trend Really is Your Friend

[PristineTrading 10]

The Trend Really is Your Friend

 

How many times have you heard the saying "The trend is your friend." Most likely more times that you've wanted to and if all you had to do is follow the trend to make money there would be a lot more successful traders. The saying really is true, but it's not that simple. There can be many different trends in different time frames, so which one do you use? Here is what I suggest.

 

What I am going to show you is for intra-day trading. However, you can use the concept for swing-trading or long-term investing. Simply change the time frames used. First, understand that is no best time frame to use. It's a choice, there are many and none will be perfect providing you with what will work all the time.

 

Those of you searching for a trading method will hear about using minute charts ranging from 1-minute to as high as a 240-minute chart and anything in between. Charts can also be viewed in seconds of time. They can also be view in Ticks, which is an activity based chart. This can be useful for viewing overnight or pre-market activity when trading volume is low. Then there is also range based charts, which create bars that are all the same range from high to low. There may be other types, but these are the main types used. All of them manipulate the same data to expand or contract it, so make a choice what you'll use and stay with it. Getting caught up in a search for the best type and for the best setting will put you on a never-ending quest for that Holy Grail. Don't do it.

 

 

Okay, hear is my suggestion that I have taught to many traders for you to consider. Use the 60-minute time frame as the primary trend for your intra-day bias. The definition of an uptrend is higher pivot highs and higher pivot lows. A downtrend, lower pivot highs and lower pivot lows. If a prior pivot low in an uptrend is violated the trend is no longer up since the definition of an uptrend no longer exists and vice-versa for a downtrend.

 

I am going to use a 20-period moving average as a "visual aid" to speed up the analysis here. This helps when scanning many charts quickly to simply view if prices are above or below the moving average. If above the moving average, think long and if below think short. If the moving average is intersecting through the middle of prices back and forth it would indicate that there is no trend, so stand aside. Very simple. Think you can do this?

 

 

Once you have your bias from the 60-minute time frame, wait for setups that you have defined as such in the 5-minute time frame to enter. For example, if the prices on the 60-minute time frame are below the 20-MA and trending lower, a 5-minute Pristine Breakdown (PBO) or a Pristine Sell setup (PSS) would be taken as a short-sale and vice-versa for a 60-minute uptrend.

 

The price pattern on the 60-minute chart is not important to us for entries. Those come from the 5-minute time frame. It's the trend we are interested in on the 60. Now I am going to show you how to know what that is without having to look at the 60-minute time frame. You may find this helpful since you will be looking at less information; one chart. Here is how to do that.

 

As you recall, I said we would use the 20-MA on the 60-minute chart as a visual aid. What we are going to do is put a moving average on the 5-minute chart that is the equivalent of the 60-minute 20-MA. Here is how to do that. There are twelve 5-minute bars that make up one 60-minute bar. For that reason, we are going to multiple the 20-MA by twelve, which gives us a 240-period moving average.

 

 

View a 60-minute time frame with a 20-MA and then look at a 240-MA on the 5-minute. You will see that they are virtually the same and end in the same place or very close to it. Here is the plan. When the 20-MA is under the 240-MA and trending lower on the 5-minute time frame take short setups. When the 20-MA is above the 240-MA and trending higher on the 5-minute time frame take long setups. Be aware of prior support and resistance areas and more importantly the lack thereof. These will affect turning points within the trend or allow prices to trend.

 

Greg Capra

President & CEO

Pristine Capital Holdings, Inc.

[Galacticus 10]

The Trend Really is Your Friend

...

 

Rather, it's a friend of clueless scammers.

[Ingot54 13]

The Trend Really is Your Friend

 

How many times have you heard the saying "The trend is your friend." Most likely more times that you've wanted to and if all you had to do is follow the trend to make money there would be a lot more successful traders. The saying really is true, but it's not that simple. There can be many different trends in different time frames, so which one do you use? Here is what I suggest.

 

What I am going to show you is for intra-day trading. However, you can use the concept for swing-trading or long-term investing. Simply change the time frames used. First, understand that is no best time frame to use. It's a choice, there are many and none will be perfect providing you with what will work all the time.

Greg Capra

I am unsure about trends, Greg.

 

Usually by the time you spot a trend, you are too late - that's why I like to identify the trend, and wait for a pullback to locate an entry. In the case that you get aboard during a pullback, the trend can "be your friend."

 

But unless you have a mechanism to identify where to get into a trend, then the trend is certainly not your friend ... what the trend is then, is the exhaust smoke of something that has taken off without you on board ... and thus the trend is a sign that you didn't get aboard in a timely manner if you missed out.

 

I like the idea of applying a higher TF MA to the lower TF. I was going to build on this concept in another thread I am posting to ... but it is my intention to do what you have described by using the daily or weekly TF to set the trend ... and then apply that MA to the lower TF.

 

That would see us using say, a 3 period MA on the weekly chart, and applying that MA to the 4H or 1H. A 3 period MA on the weekly then, would be the equivalent of a 90 period MA on the 4H ... and a 360 MA on the 1H.

 

The 3 period MA on the Daily would be the same as the 18 period MA on the 4H or the 72 MA on the 1H.

 

Now many traders won't bother to think much about this, because they may wonder what these higher MA's are doing on the lower TF ... slowing down the action?

 

Of course, all we are doing is proving the direction of the flow of money at that time. So that if you only trade in the direction of the flow, then you have a better chance than trading counter to the flow. If you know where the price is flowing, then you will be undeterred by market "noise."

 

So while I do not totally disagree ... I would like to see this clarified to the extent that it is not the trend that is your friend as much as it is the pullback that can be identified to get you into that trend ... with minimum draw-down.

 

Now that would be a REAL friend!

[John P. 10]

How often to markets actually trend? Is it 20% of the time?

 

Is a friend who is your friend only 20% of the time really your friend?

[DbPhoenix 42]

I am unsure about trends, Greg.

 

Usually by the time you spot a trend, you are too late - that's why I like to identify the trend, and wait for a pullback to locate an entry. In the case that you get aboard during a pullback, the trend can "be your friend."

 

But unless you have a mechanism to identify where to get into a trend, then the trend is certainly not your friend ... what the trend is then, is the exhaust smoke of something that has taken off without you on board ... and thus the trend is a sign that you didn't get aboard in a timely manner if you missed out.

 

This is a particularly bad example of the thesis that the trend is your friend since Capra is trying to short a stock that's been in an uptrend since August '11.

 

But even if one is open to the idea of shorting this stock in an assumption that it is going to travel to its long-term trendline, the entry is far too late.

 

The "trick" is not to catch the trend but to anticipate it, and this is done after the stock breaks its very short-term trendline (the one that begins in February) and fails to make a higher high on March 14th (at the open, actually). Once that opportunity presents itself, all one has to do is sit.

 

The MAs, of course, are irrelevant, as would be any indicator.

[Ingot54 13]

This is a particularly bad example of the thesis that the trend is your friend since Capra is trying to short a stock that's been in an uptrend since August '11.

 

But even if one is open to the idea of shorting this stock in an assumption that it is going to travel to its long-term trendline, the entry is far too late.

 

The "trick" is not to catch the trend but to anticipate it, and this is done after the stock breaks its very short-term trendline (the one that begins in February) and fails to make a higher high on March 14th (at the open, actually). Once that opportunity presents itself, all one has to do is sit.

 

The MAs, of course, are irrelevant, as would be any indicator.

DB - it is unclear whether you are addressing Greg Capra's thesis or mine.

 

Could you please clarify further.

 

I agree - if you do not anticipate the trend ... ie take a position before the trend is obvious ... then you have missed a good part of the move.

 

However ... while MA's might be irrelevant to your strategy, they may be integral to others' strategies. Some people use MA's not for the reasons that they might or might not cross, but to identify things such as "the side of the market to be trading or holding off" ... or ... "the establishment of supply/demand levels" etc.

 

And yes, I believe there are some instruments that could be traded successfully using a strategy involving MA's in other ways too.

 

But I would like to hear what you have to say about getting into trends ... and to have you clarify your statements a little further.

 

Thanks ... Ingot

[DbPhoenix 42]

DB - it is unclear whether you are addressing Greg Capra's thesis or mine.

 

Could you please clarify further.

 

I agree - if you do not anticipate the trend ... ie take a position before the trend is obvious ... then you have missed a good part of the move.

 

However ... while MA's might be irrelevant to your strategy, they may be integral to others' strategies. Some people use MA's not for the reasons that they might or might not cross, but to identify things such as "the side of the market to be trading or holding off" ... or ... "the establishment of supply/demand levels" etc.

 

And yes, I believe there are some instruments that could be traded successfully using a strategy involving MA's in other ways too.

 

But I would like to hear what you have to say about getting into trends ... and to have you clarify your statements a little further.

 

Thanks ... Ingot

 

Capra's. I won't be criticizing yours or offering any suggestions regarding yours because you've been at this for so long and are leaving the field. The best I can do without being an asshole is congratulate you for giving it the old college try.

 

But as for the indicators, no. They add nothing and not only subtract a great deal but divert the attention away from where it ought to be: what is price doing and why is it doing it. Price is eventually what we have to deal with, something that many once-fundamentalists learned in 2000. And '08.

 

But indicators or not, this is a bad example because Capra's encouraging the trader to trade counter-trend. A great many traders do because they don't know how to identify the conditions for a trend reversal, much less trade it. Therefore, they trade counter-trend and get screwed. If they're going to make anything at all out of the trade, they must be able to get into the reversal at the earliest possible moment, something that they are most likely to do out of luck since they know so little about trend, trend change, trend reversal, and managing a trend trade.

 

All you need is a simple trendline and a recognition of what a lower high is. Whether one uses a 60m or 15m chart is irrelevant. A lower high is a lower high, and the stop is in the same place in all cases. What is most important in counter-trend trading, again, is getting in as soon as possible. To wait longer than necessary means that one is that much closer to the end of the reaction or correction and that much more likely to be stopped out.

Edited March 22, 2013 by DbPhoenix

[Greg Capra 10]

Trends exist in many time frames. To require that the trend in every time frame be in agreement before trading while makes sense in theory. This complete agreement of all time frames rarely exists, and it does not have to for high odds trading opportunities. For example, does an intra-day trader taking entries from a 5-minute time frame need to concern themselves with the weekly or monthly time frame? No of course not. That 5-minute trader’s goal or target exit might take place over a period of 20-minutes or a few hours. The scalping level II trader reading time & sales, should they consider the 60-minute trend? NO.

 

DbPhoenix misses this point completely by saying I am trying to short a stock that has been in an uptrend since August 11th. II assume he is talking about the daily time frame. The monthly has been in an uptrend for that stock shown for years. However, it doesn't matter as it relates to the charts/time frames and concepts I posted. It does not matter…..

 

A pullback on the daily uptrend that the swing trader is patiently waiting through over several days to some area of support to buy turned the 60-minute trend lower as prices reversed. Odds are that stock will not stop moving lower until it reaches that price support. Short-term, the odds are that the stock is going lower. Why can’t the intra-day trader take advantage of that over say 15-to 30-minutes? Of course they can and do it all the time.

 

Do you think there were traders shorting the S&Ps yesterday (4-15) because they were trending lower on the 60-minute and 5-minute time frames? Or did they say, oh no; I cannot short the S&Ps because that would be a counter-trend trade on the daily and weekly time frames. You know the answer to that and you should see my point made in the original post.

 

On defining the actual trend I said “The definition of an uptrend is higher pivot highs and higher pivot lows. A downtrend, lower pivot highs and lower pivot lows. If a prior pivot low in an uptrend is violated the trend is no longer up since the definition of an uptrend no longer exists and vice-versa for a downtrend.”

Can it get any simpler than that? The break of a trend the way I explained it occurring is the only way that actually violates or breaks the trend. The break of a trend line is often meaningless and creates a belief about a trend break that is totally wrong. Also, the break of a trend the way I explained it will violate a trend line every time, so why draw pointless lines on the chart?

 

If you would like to watch a recording I did for Traders Planet that details this concept of trend analysis - you can at this link Where is the Market Going? Current Market Analysis by Greg Capra

 

I also said “I am going to use a 20-period moving average as a "visual aid" to speed up the analysis here. I did not say that the 20-period moving average defines the trend. As a visual aid, the 20-MA is a simple tool that speeds up the scanning process. We are looking for “pictures” of opportunity as defined in a trading plan. Once you find that picture further detailed analysis can be done. My prior post was a method of getting you to that point with two confirming time frames. Yes there is more to know before pressing the button.

 

This is what I think you wanted to know Ingot. I’ll write about that another time and post it. I hope this post helps.

 

Greg Capra

President & CEO

Pristine Capital Holdings, Inc.

[arvo 10]

How often to markets actually trend? Is it 20% of the time?

 

Is a friend who is your friend only 20% of the time really your friend?

 

:thumbs up: couldn't agree more! The "trend your friend" is a bucket shop cliche for beginners. The range is a much better friend, or at least a good guide, because the range shows you the really important levels to get in or out, bounce or break out. After all, what is a trend but a range with dynamic short-term support/resistance lines that keep changing until it they something more solid, i.e. a true range level? Or put it another way - trends are directional movements within ranges, and even those very often consist of trending ranges, wedges, breakouts and failures of all sorts...

[DbPhoenix 42]

DbPhoenix misses this point completely by saying I am trying to short a stock that has been in an uptrend since August 11th.

 

I'm afraid you miss mine.

 

If one is looking for shorting opportunities, he is far better off looking among issues that are in trouble, not issues that have been and are in strong uptrends.

 

In any case, as I continued, "But even if one is open to the idea of shorting this stock in an assumption that it is going to travel to its long-term trendline, the entry is far too late.

 

"The 'trick' is not to catch the trend but to anticipate it, and this is done after the stock breaks its very short-term trendline (the one that begins in February) and fails to make a higher high on March 14th (at the open, actually). Once that opportunity presents itself, all one has to do is sit.

 

"The MAs, of course, are irrelevant, as would be any indicator."

 

This was a poorly-considered and implemented trade, and a poor example of the "trend is your friend" point you were trying to make.

[Logic 10]

HOW TO SAFETY TRADE TRENDS

 

All symbols are in a trend all of the time.

That statement will send a lot of people's sensibilities into a tail spin.

 

Allow me to explain.

 

Intraday a symbol might be in ugly consolidation but in a longer term swing or an even longer term position environment that same symbol might be in a solid UP or DOWN trend. The opposite will apply in the opposite direction as well.

 

The first step is to determine the chart increments (intraday, swing or long term position) and symbols (stocks, commodities, futures, ETF's or options) you are going to trade.

The second step is to specifically define what the term "TREND" means to YOU both visually and physically!

The third step is to look for YOUR confirmed trend on the basket of charts and symbols you monitor.

The fourth step is to monitor/track the oscillation pull backs & pull ups on those UP & DOWN trending charts so you can personally confirm the profitable outcomes of "buying pull back oscillation bottoms in YOUR confirmed UP trend & selling pull up oscillation tops in YOUR confirmed DOWN trend. (Once you are confident of those outcomes, after several months of chart watching, start trading small lot positions using the exact same parameters.)

The fifth step is go slow, grow slow, be steady, be consistent and be patient.

 

We shouldn't trade trends. We should trade the confirmed pull backs/ups on charts where we have confirmed "A" trend.

 

I only trade using CVB (Constant Volume Bar) charts because I've found them to be drastically more stable and smooth compared to time or range charting. I believe any time we can eliminate the potential of choppiness and consolidation from our charting, it is a huge plus.

 

I've posted a couple chart increments of the same day for the Light Sweet Crude symbol. One is a 5 minute chart and the other is a CVB chart. It's easy to see, visually the drastic difference between the two.

 

I hope this helps.

[Greg Capra 10]

Let’s see if we can find some common area of understanding here by showing you the same concept from the original post with a different stock within a sideways daily trend. The intra-day trends will be essentially the same as the stock (HD) that was in a daily uptrend from the first post.

 

First, Arvo your comment that The Trend is your Friend is a bucket shop cliché for beginners suggest that you are that, a beginner. No matter what your or anyone’s style of trading is - a trend is traded. That trend can last seconds, minutes, hours or even years. Where “you” want to put “your” focus is up to you. How one gets on board that trend is another discussion.

 

A counter-trend trade setup that we refer to at Pristine is a Climactic Buy Setup (CBS). This is when a downward move accelerates lower and is ready to reverse higher based on criteria used. This counter-trend does become an uptrend in some lower time frame. Meaning, as the turn starts (CBS), in the higher time frame, a lower time frame has to change trend. The CBS can be on the daily time frame were it never reverses that trend and the 60-Min. and/or 5-Min. can turn up. Make sense?

 

The understanding of how to use the alignment of multiple time frames or lack thereof is lesson everyone needs to learn. Then decide how to incorporate that into your trading plan. We can do it differently and both make money.

 

DbPhoenix, I understand what you mean when you say “it is far better off looking among issues that are in trouble.” I am doing exactly that; however, you want to view that from a different time frame rather than what I am showing. I am picking a stock (could be anything) at a point in time when trouble is starting on the daily time frame and then waiting for confirmation on the 60-Min. I assume that you rather have a stock that trouble as started in a time frame of your choice; a higher one. That’s fine of course. I am doing the same thing at a point where your higher time frame is started to correct (minor trouble, but isn’t likely to change the trend (bigger trouble) in that time frame.

 

Assuming you are using the daily and waiting for “trouble” there to short. Your same argument can be made by another by saying, why are you doing that? The weekly and/or monthly time frames are in strong uptrend.

 

Logic said it in another way, “Specifically define what the term trend means to You.

 

Getting back to my original post on trends and using moving averages as a visual aid and guide. The first post clearly showed the break of the trend on the 60-Min. time frame and followed that on the 5-Min. One moving average was used to know what the direction of prices were on the 60-Min. when only viewing the 5-Min. The 240MA on the 5-Min. is the same as a 20-MA on the 60-Min. This does not make the MAs irrelevant. It uses them as a tool to reduce the information being viewed (only one chart).

 

I also talked about how to define a trend using the only objective way of doing that - with swing highs and lows. Or want is also referred to as pivot highs and lows. These pivots can form in different ways, but I said that a pivot high requires at least 2 lower high bars to the left and right of a pivot bar and at least 2 higher low bars to the left and right of a pivot low bar. The trend of these pivots IS what makes a trend. That is black and white.

 

If we have a trend of higher pivot highs and higher pivot lows, the break of a pivot low that preceded a higher pivot high, breaks that trend of HHs and HLs. That is also black and white. Meaning, it cannot be interpreted any other way no matter how you look at a chart. And, as I previously said. The break of that definition of a trend break will violate a trend line Every Time, so no need to draw lines. If you like to draw them go ahead, but now you will know when a trend line break is meaningless or not.

 

Based on pivots, and as I said they can and do form in various ways, I wrote code that defines those pivots and the trend of them. The trend of those price pivots or the change of trend of those pivots will color the moving average of choosing as to whether the trend is bullish, neutral or bearish.

 

With that in mind, let’s look at a stock (AMZN) in a sideways trend on the daily time frame and when “trouble” or “opportunity” was at hand on the 60-Min time frame. Either is personal to your bias of course.

 

 

In the above, Amazon (AMZN) was in a sideways daily trend. What is common to AMZN here and HD that I used for the original post is that both were at short-term turning points. HD had been moving up for over a week and momentum was slowing. AMZN moved up for about a week also and was turning. With both, the bias was that they were going to experience an increase in selling or supply was going to overcome the recent demand.

 

We cannot know that a trend break will definitely happen, so I wait for that trend break on the 60-Min. time frame. Once the break of a downward trend happens, it’s anticipated it will result in a higher low (HL) forming. A break of an uptrend should result in a lower high (LH) forming. After a break on the 60-Min. that is aligned with what is occurring on the daily we have a bias to trade confirming setups on the 60-Min. or move lower and trade that bias on the 5-Min. Placing a 240-MA on the 5-Min. will show us the trend on the 60-Min. as explained. If I am scanning a list of symbols using a 5-Min. chart with these two moving averages I know the trend on both the 60-Min. and the 5-Min.

 

Let’s look at the 5-Min.

 

 

On the above 5-Min. chart, I have marked the LH area from the 60-Min. chart. That was the earliest entry based on the trend break on the 60-Min. Remember that a break of an uptrend does not change the trend to down. It only means that the trend is no longer up. However, a LH can be traded short in anticipation of the trend turning down.

 

Once prices gapped lower, it established the LH on the 60-Min. and downtrend on the 5-Min. Notice that both moving averages are now red. At this point, find “your” entry points based on “your” trading plan or setups. I marked the breakdown, the larger M-top that was the PSS on the 60-Min. and the smaller M-Top that formed at Minor Resistance (mR) as entries. As prices neared the support that can be seen on the daily time frame the odds of stabilization, choppy price action or a reversal back up increases.

 

I hope this third expanded explanation with confirming charts helps clear the point of view I made in the original post.

 

Lastly, it’s understandable that some on forums feel threated by comments of trading method that is not the same as theirs. Especially, those that have put a lot of time studying that method and spent money learning it. If what you read makes you question that method, don’t read these forums. But realize that there many ways to trade and I have presented one that does work. If you like the idea try it, if not don’t. It’s simply here for those interested in learning others points of view in search of one that they can make their own. Sharing ideas and trading methods is what these forums are for. It’s possible that my first post did not explain my views clear enough. If so, ask questions and I am glad to expand on my point of view.

 

All the best,

 

Greg Capra

President & CEO

Pristine Capital Holdings, Inc.

[DbPhoenix 42]

Let’s see if we can find some common area of understanding here by showing you the same concept from the original post with a different stock within a sideways daily trend.

 

Let's stay with your original post and your original example since you must have put considerable thought into its content and chose the example based on how well it illustrated the contents of the post.

 

DbPhoenix, I understand what you mean when you say “it is far better off looking among issues that are in trouble.” I am doing exactly that; however, you want to view that from a different time frame rather than what I am showing. I am picking a stock (could be anything) at a point in time when trouble is starting on the daily time frame and then waiting for confirmation on the 60-Min. I assume that you rather have a stock that trouble as started in a time frame of your choice; a higher one. That’s fine of course. I am doing the same thing at a point where your higher time frame is started to correct (minor trouble, but isn’t likely to change the trend (bigger trouble) in that time frame.

 

Assuming you are using the daily and waiting for “trouble” there to short. Your same argument can be made by another by saying, why are you doing that? The weekly and/or monthly time frames are in strong uptrend.

 

But it is NOT in trouble at the daily interval. It is merely finding resistance at the top of the trend channel and reverting to the mean. One can use hourly bars to show the same thing. One can manufacture "weakness" by using MAs of one sort or another, but the MAs are in the viewer's head, not in the market. Therefore, instead of "The Trend Really Is Your Friend", you're are promoting trading counter-trend. In this example, however, it isn't even counter-trend. At best it is a pullback in an ongoing trend, and I assume you teach your students how to profit from that.

 

The arrow here shows where you have suggested that the student short this stock:

 

 

 

 

Note that if the student had taken your advice, he would not have earned even a point, since price was too strong even to reach the mean of the channel, i.e., the uptrending range. More likely he would have held on since he was assured that he was trading a "downtrend" and lost money instead. What should have been taught was how to buy a pullback in an uptrend. This would have earned considerably more than a point, in which case the trend really would have been his friend.

 

Trading counter-trend is tricky even for someone who is experienced. For a student, it is very highly NOT recommended. But even if this was the purpose of your original post rather than what its title implies, you were, as I pointed out, way too late for a counter-trend trade.

[BlueHorseshoe 10]

One can manufacture "weakness" by using MAs of one sort or another, but the MAs are in the viewer's head, not in the market.

 

Note that if the student had taken your advice, he would not have earned even a point, since price was too strong even to reach the mean of the channel, i.e., the uptrending range.

 

I'm intrigued that you seem to be distinguishing between "the mean"and MAs here?

 

BlueHorseshoe

[BRichard 10]

The basis behind using technical analysis is to find trends when looking at the Forex charts and be aware of when they first develop so you can ride the trend until it ends. The foreign exchange market is a very strong trending market, lots of ups and downs in short periods of time and therefore you should perfect the art of technical analysis to sail through the rough tides while trading in currencies.