How To Find The Trend On A Chart
Friday, July 3rd, 2009    Subscribe To Our Feed
A funny thing happens when you put up a price chart and ask people to define what the trend is.Even when it seems completely obvious without question, you still will get many different answers to the same chart which should not happen.This results from people not knowing how to find a trend on a price chart with any speed or accuracy. It is actually quite simple, and is a key thing to know if you want to learn to trade.
The first thing to do is to size the chart properly.There is no real point in loading 5 years of data on a stock you plan to day trade and hold for a mere 5 minutes. So here is a guide for what you need as far as time loaded on a chart:
Daytrade:
- 1 min chart: Have at least 2 hours of data (120 bars) on the screen but no more than 6 hours (1 full day).
- 2 to 5 min chart: Make sure you have at least 3 hours of data up, but no more than 2 days.
- 10-15 min chart: Have at least 3 days of data up, but no more than 1 week.
For swing trades, which are a longer term hold, you will want a 10 to 30 minute chart on your screen, and additionally about 10 days of data.
As soon as you have the chart data up on your screen, change the bar type to a "bar chart" style. This is easier to see the trend.Start by looking for every V bottom area. Anytime there is a low with a V bounce, make note of it.Additionally, look for / top areas where the price spikes up and then sells off sharply. Concentrate on the major ones (meaning it makes a significant move away from that area in a short time). Next, get your drawing tool and connect the V to each other V. Connect the / to each other /. Connect the low of the V, the highs of the /. Again, this is a key to learn how to trade.
Lines that slope up to the upper right corner mean the stock is currently in an uptrend. Lines that slope from the upper left down to the right means the stock is in a downtrend.Another easy method: Go to the first bar on the left, and then to the very last price on the right hand side. Draw a line between the two.if the line is pointing upward - this is an uptrend.if the line is sloping down to the right, then the trend is a downtrend. The other key thing to look at is the oscillations around this trendline. Does it go +/- 2pts, +/- 1pt, +/- .50 etc - on average, not exact.This is how you can tell in general the strength of the trend.The lower the general oscillation in price, the stronger the trend is.The thinking here is that the price hardly oscillates because the buyers in an uptrend chase is up and bid, and the sellers in a downtrend chase it down and offer so it does not really counter move much.
Another thing to keep in mind the more you practice, the faster it gets - the lines are no longer necessary.I can glance at a chart and know the trend and approximate strength within seconds.Additionally, you really need to know the trend direction and strength on the next higher timeframe than you are trading on. For example, on a 5 minute chart the trend might be up, but on a 15 minute chart it is still down.This needs to be focused on, because a longer term trend can often pull the shorter term trend back in line. In general, you want a higher term chart to be a multiple of 3 vs the chart you are trading.So the way it works is if on a 1 min chart, you also want to look at a 3 minute chart - if you are using a 5 minute chart, you want to look at a 15 min chart also. Once you can easily tell the trend of any chart, other aspects of learning to trade become much easier.
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