Methods of determining the true trend

Ron Schelling, the private trader, explains in his article as a combination of RSI and a few temporary banding helps accurately identify the trend.

Too often asked: what is the trend? Is it possible to determine the trend of using the moving average, or some indicators? Whether with the help of which you define a trend, it is important to find a tradable trend, on which you are going to work. This should be the basis for your sales approach. Combining this approach with several bands on the same time schedule will help you determine in which direction you need to open the next transaction.

The key to profitable trading is to have valid method of determining the correct direction and traded with the trend of using different time ranges on the same graph. It has long been Robert Krause presented the strategy TrendFinder, in which he uses multiple time range in several ways.

Since then, work on multiple time range is available in most standard software packages.

First, we need to select two time range, which we are going to use it. For example, daily bars for trade and weekly to determine the trend. Of course, we can use other combinations. For example, minute bars and 5 minutes and so on.

We look at the basic setup.

The rules are:
- The trend can only be a bottom-up or top-down.
- The trend is ascending, when the bar closes above the previous week (week marked in light blue bar) maximum, thus this graph bar changes color from red to green.
- Trend is a top-down, when the bar is closed under the previous week (blue) minimum, thus bar changes color from green to red.
- At point A closing above previous week's peak, the trend is ascending.
- At a point in the closing below the previous week's level, the trend is the top-down.
- At point C above the previous week's closing high, rising trend again.

Figure 1. EUR / YEN

Using multiple time range is based on the concept that each time period has its own trend, as well as their levels of support and resistance. The trend, levels of support and resistance for the weekly schedule differed from the trend, and these levels for the daily schedule. In this case, weekly bars help remove noise, which generates daily beverage. Of course, you can use this tactic in intraday or other time ranges.

The next question is: is there a tool to confirm the signal, which gives the above strategy is the range of dates. Let us look at the Relative Strength Index Relative Strength Index, which should not be confused with relative strength used to compare the share price and market index or group of shares.

In the RSI formula numerator is positive moving average closing price divided by the average closing price moving negative. Then the result normalized, so we have a value from 1 to 100. The value above 50 indicates that the average net price difference is a positive closure. When a value below 50, it indicates that the average net difference between the closing price is negative. In this case, we do not need Doña and peaks on the graph RSI.

At point A closing above previous week's peak, so the trend was ascending at the same time, the value index RSI was above 50, which confirmed the effect of trend. At a point in the closing occurred following the previous week's level. Confirmation of the index was the next day, when it fell below 50. At a point P on the rising trend has changed since the closing of the bar was higher than the previous week's peak, the value of RSI exceeded 50, affirming the message.

Figure 2. EUR / YEN

Now let's look at another example. Figure 3 schedule of the Singapore dollar. The graph shows the daily bars (red and green) and weekly bars (blue). At point A new top-down trend has been confirmed by the value of RSI, as well as at point B. At point C a clear confirmation of the signal was not a top-down trend has changed rapidly in the ascendant. At point D, we received a good signal to turn the trend down, and confirmation of the alarm index.

Figure 3. SGD / USD

As noted vyvshee probably a lot of combinations, including intraday, such as 1-minute and 5 minute bars, and 1 hour and 5 hour beverage.

In Figure 4 we see a timetable for the Australian dollar / U.S. dollar using a 3-hour and day of bars. Daytime bars are based on 15-hour time range, ie we see intraday bars during the trading day. October 31 intraday 3-hour bar was closed by the previous day minimum, 3 hour index RSI was below 50. Ie we got the signal to close all long positions and open a short position.

Figure 4. AUD / USD

At the close of October 31, both indicator RSI: 3-hour and day were lower than 50, ie, at this point, the trend has changed completely in the downstream.

Of course, instead of RSI, you can use another indicator to confirm the trend, for example, a standard indicator, or MACD Ergodic Candlestick Oscillator. You can simultaneously use several indicators to provide a more accurate picture.

To determine the trend, you can search for the oscillation maxima or minima, use the moving average, but the tactic of combining RSI and a few time range is very simple and useful.

Ron Schelling - independent trader from the Netherlands
© TRADER'S Journal, Ron Schelling