There’s a famous Wall Street saying that goes like this…
Question: What is the trend of the market?
Answer: What is your time frame?
What does this mean?
This means there are trends on different time frames. You can have a
downtrend on a 5 minute chart and an uptrend on a daily chart.
Here’s an example…
So, now you understand that trends can exist on different time frames.
Now… let’s learn how to define a trend objectively.
There are two ways you can go about doing this:
1. Structure of the markets
2. Moving average
Structure of the markets
The market is in an uptrend when there’s series of higher highs and higher lows.
Likewise, in a downtrend there’s a series of lower highs and lower lows.
Alternatively, you can use moving average to define the trend.
Here’s how you can do this:
◉ 20 ma – Short term trend
◉ 100 ma – Medium term trend
◉ 200 ma – Long term trend
If 20 ma is pointing higher and the price is above it, then the short term trend is up.
If 100 ma is pointing higher, and the price is above it, then the medium term trend
If 200 ma is pointing higher, and the price is above it, then the long term trend is
Let’s look at a few examples: