3 Common Methods to Help You Determine if the Current Trend Has Reached Its End

The First Method: MACD Divergence This method is very simple. Those who have studied MACD know that when MACD diverges, it usually means that this trend may be coming to an end; If you find that the MACD movement is inconsistent with the K-line price movement, it indicates that the momentum of this trend has weakened; it could be a signal of the end phase; however, the occurrence of top-bottom divergence can only indicate that there is a depletion of momentum, which is a warning signal; it's like a car driving straight ahead has activated its brake lights, giving us a warning signal not to blindly chase highs or go short. We still need to choose our entry based on the specific performance of price behavior.

The Second Method: Price Action Analysis Leg 1 = Leg 2 This method can help you determine if the trend is weakening.

In an upward trend, when the movement of the second segment (Leg 2) is similar to the first segment (Leg 1), it indicates that the trend may have reached its endpoint; in addition, we also need to combine the number of pullbacks and the depth of the pullbacks to help us determine whether this segment of the trend has reached its end.

The Third Method: 123 Rule

Point 1 states that when drawing a trend line, it must be validated by 3 points or more to be considered a trend line; if it can only connect one point, a third point is needed for validation to be considered an effective trend line;

According to the 123 rule, 1. The price needs to break through the trend line first 2. The rebound does not create a new high 3. Break below the previous low These three conditions must be met for the current upward trend to be considered in a stage reversal.