Accurately identifying market trends is the key that opens the first door in understanding the price movement path.
One of the three fundamental premises of Technical Analysis clearly states that "prices move in trends". So, how do we identify a price trend? More precisely, at a specific time frame, how can we determine the trend accurately? And which method should be used?
You may have encountered many trend identification methods, such as technical indicators: Moving Averages (MA), Bollinger Bands, Ichimoku, MACD, Parabolic SAR, etc. However, today we will use a very simple and effective method: the Highs and Lows method. Almost every beginner in Technical Analysis has seen this method, but there are details you may have overlooked.
Understanding Time Frame-Specific Trends
As mentioned in the previous article, trends are temporary. Each time frame has its own trend. For example, the Trend and Yin-Yang article explains why trends in different time frames can move in opposite directions.
Uptrend: Prices create higher highs and higher lows (using the nearest highs and lows for reference).
Downtrend: Prices create lower highs and lower lows (again, using the nearest highs and lows).
Introducing Clear Highs and Lows
To determine the trend accurately, we introduce the concept of Clear Highs and Lows, which:
- Precisely identifies market trends
- Acts as support/resistance levels
- Often accompanied by high trading volume
- Must be analyzed within one time frame. Multi-time frame analysis comes after trend identification.
Example: EUR/USD (M15)
For EUR/USD on the M15 chart (September 16, 2017):
Points A, B, C, D, E, F, G, H represent Clear Highs and Lows, forming the market trend.
- From A to C: Sideways
- From B to F: Uptrend
- Current trend: Sideways (Sideway/Consolidation)
Note: Even if the price exceeds intermediate highs, it must surpass previous Clear Highs and lows must form lower than previous Clear Lows to confirm a trend change.
Example: GOLD (XAU/USD, H1)
Gold market currently shows sideways trend within a downtrend.
- Trend identification allows better entry/exit decisions
- Traders can prioritize buy/sell based on previous trend direction and style (trend-following or counter-trend)
- Multi-time frame analysis improves confirmation
Key Takeaways
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Trends are temporary and time-frame specific
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Identify trends using Clear Highs and Lows
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Sideways markets require observing previous trend direction for decision-making
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Combine multi-time frame analysis for accurate market understanding
Accurately identifying Forex trends provides the foundation for entry and exit decisions. This method has been applied throughout the Forex journey and continues to be effective.
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