Why are trends important?
“Trend is your friend” is a famous saying among traders for a long time, expressing the importance of correctly identifying the trend for a successful trade.
Essentially, when you put money into a trade order, you are betting on the victory of the buyer (Long) and the seller (Short). If the general trend is an uptrend (like the recent Crypto Bull run), you may not need to analyze and buy any altcoin to win, which shows the strength of the trend.
So, how to identify the correct trend? You guys can also find out right below.
Types of trends
The market has 3 types of trends:
Uptrend: formed with the next peak higher than the previous peak, the next bottom higher than the previous bottom.
Downtrend: formed with the next peak lower than the previous peak, the next bottom lower than the previous bottom.
Sideway trend (also known as a trendless market): does not have a clear top and bottom structure like the two types of trends mentioned above.
Examples of trend types:
In the example above, you can see something quite interesting: although in the 4H time frame, BTC tends to decrease, the 1H frame is sideways. To explain the difference in trends between timeframes, let's explore the next section.
Trend levels
If you pay attention, in a big wave there will be small ripples. Trends are the same, there are main trends, intermediate trends and short-term trends.
Primary trend: is a type of trend that has a long-term effect. For the crypto market, I temporarily "limit" the main trend to a time period of 3 months or more.
Intermediate trends: are long-term trends lasting about 1 week - less than 3 months.
Short-term trends: are trends that take place over a short period of time, a few hours or a few days.
In the examples above, you can see that although 4H BTC tends to decrease, in smaller timeframes such as 1h or 15M, BTC can go sideways or tend to increase, which are the levels of the trend. .
If you trade in a smaller frame, for example 15m, 1H, 4H, you can re-divide the trend level as you like!
Determine the trend using trendline
To accurately identify a trend, traders often use trendlines.
The uptrend line will be a straight line from bottom to top, connecting bottom levels from low to high. Note: The following bottom must lead to a higher peak than the previous peak to be valid.
Trends continue and trends are broken
Trends can continue or break. In Price Action, a trend is considered to continue when the key-level of that trend has not been broken and vice versa, it is broken when the price breaks through the key-level and will reverse if pairs of tops and bottoms are formed. Follows the opposite rule of the previous trend (if the previous trend was an uptrend, after the uptrend is broken, the price forms the next peak lower than the previous peak, the next bottom is lower than the previous bottom, then the trend reverses. reduce…)
Example of trend continuation:
In this example, after determining the key-level of the trend (the price area leading to the next peak), you can see that although the price is decreasing, it has not broken this key-level, so the trend in the market is This case is still an uptrend (considering the same timeframe).
Example of a broken trend:
This is an example of AXS/USDT. You can see that the price broke the key-level of the uptrend (4H frame), then re-tested and crashed down, creating a new bottom lower than the old bottom. Therefore, in this case the trend is both broken and reversed.
Real combat
You certainly encounter situations where the 4H frame tends to decrease, but the 1H frame increases, and you don't know how to enter orders according to the trend?
Here's my way:
Step 1: Identify relevant timeframes. For example, when I scalp 15m, I am interested in larger timeframes such as 1H and 4H (to determine the main trend and important key-levels).
Step 2: Identify the trend from large timeframes to small timeframes. When observing the chart, I will prioritize looking at the large frame first and then the small frame.
Step 3: Trade according to the large frame trend. If 4H is a downtrend, we just short.
Step 4: Wait for phase synchronization. If 4H is a downtrend, 1H is a downtrend but 15m shows an uptrend, remember the trend levels. If the key-levels of 1H and 4H have not been broken, you can still determine that this rising wave is only a temporary recovery wave, a small trend. Therefore, you wait for 15m to reverse into a downtrend (then 4H, 1H and 15m are all downtrends), then we short. At this time, the win rate is very high because all 3 timeframes agree.
Note: In the example above, you can short if the price rejects the key-level area and form nice setups for shorting without waiting for a trend reversal. Of course, the win rate will be lower than patiently waiting for all 3 timeframes to agree with each other.
Above are all the most basic things about trends in price action. See you again in the next parts of Trading 101 Class!
