The trend is your friend is a saying of traders that implies that trading should follow the trend to have the highest probability of winning. Trend trading also means that we are going in the same direction as the crowd in the market. As traders, we will never want to be in a state of "one-on-one" with the market when trading against the trend.

1. The simplest way: use a line chart.

Almost every trader by default uses a Japanese bar chart or candlestick pattern to observe trends, but using a line chart can give us a clearer and standard view of the market, especially when traders want to see the market. The trend considers the structure of the market on a large time frame (daily, h4).


With the information of each candle, it will make the chart seem confusing even as a professional trader, but when it comes to line charts, everything looks much clearer.

2. Classic style: use swing high and swing low points.

Swing high, swing low are methods of determining the classic trend of traders.

The idea behind trend determination in this way is that during an uptrend the market will create higher highs because at this time the buyers are dominating and pushing the prices higher, the lows are also higher because the buyers continue " bottom-fishing ". Similarly, in a downtrend, the lows are lower and lower and the peaks are also lower as the dominant sellers continue to drag prices down deeply and try to "catch the top" of the market.

For easy visualization, you look at the chart below.


3. Use the moving average lines

The moving average (MA) is the most popular tool and very easy to determine trend direction based on MA. However, there are a few things you need to know when analyzing the trend following the moving average:
  • The cycle of the moving average determines when you get the signal line reversing.
  • The low period MA will give early and inaccurate signals because the reaction to the price is too fast.
  • The large period MA will give late signals, but in return will help you stay in the trend for longer.

Using the MA line to determine a trend is also very simple, when the price is above the MA, the market is in an uptrend, and vice versa when the price is below the market MA in a downtrend. However, you can see that the MA is very bad at determining when the market is sideways, so most traders need another tool to filter this sideways signal like the Bollinger Bands.

4. Use channel and trend line.

Channels and trendlines are also a classic method to determine trend direction and help you predict the sideways market better than MA.

The advantage of using the trendline lies in its accuracy.


When the price breaks the trend is a signal that a new trend is developing, this method is suitable for break out traders.

Refer to 4 methods of trade price action using the channel.

5. Use the ADX indicator.

The average directional index (ADX) is the default indicator available in the mt4 software. The ADX indicator includes 3 components: the ADX line will show us the strength of the trend, the + DI line gives us the strength of the buyers and the -DI line shows the strength of the sellers.


The ADX indicator in the picture above has been omitted from the ADX line because for the purpose of determining our trend, we only need the remaining 2 indicators of the indicator. When using ADX, we will observe the + DI and -DI lines, when + DI is above the -DI line is an uptrend, the opposite is the downtrend, especially the more separate the two lines, the stronger the trend goes. ADX also forecasted the sideways market when the + DI and -DI lines crossed and crossed continuously.

However, observing the chart does not reflect the actual situation when we trade. We rarely find out early when the sideways market when using ADX alone (just look at the chart, how do we define when ADX starts to go close together? When ADX splits to form) new trend). So, first, you need to understand ADX carefully, the second is to research a new indicator or price action to confirm your signals.

Conclude:

As you can see, there is no perfect tool for defining a standard trend. But that doesn't matter if you know that a trader's formula for success is not 100% true. As a trader, instead of looking for a standard trend determination tool, we should choose the tool that best suits us, understand it well and understand how to apply it in practice to survive in this harsh market...

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