At the moment if the market stops falling sharply or soaring (if we reach this day — December `18), try to ask traders what do they think about the direction of the trend. You have a great chance to start a small civil war: opinions can differ.
You can check out when the BTC will stop falling, right in our chat.
It may seem that there is no universal way to determine the presence of a trend.
But it is not so.
A trading plan begins with an answer to the question in which direction to trade. This is the basis of a trading strategy. That’s why logic is important, not forecasting.
Meet the price patterns method. Its stats allow to call it not a superstition, but rather a method.
It’s easy to remember.
Everything that you see on the chart can be divided into two groups: “the market is growing”, and “the market is falling”.
Each group consists of only two forms. One shows that the trend correction has not begun yet. The second one shows the beginning of the correction within the trend.
Learn to find one of the four forms, you’ll feel yourself like gods of trading (well, it can be wrong, but still nice).
So, two pairs of price patterns — four standard patterns of price behavior for growing and falling markets. All other types of market behavior have nothing common with directional movement.
Each model is based on the classic definition of the trend. In a bullish trend, each subsequent maximum point is higher or equal to the previous one. During the bearish trend, each new minimum point is lower or equal to the previous one.
The first bullish price pattern is called “bullish momentum”
Signs of the bullish momentum:
- Support and resistance levels were formed,
- The market has pierced the resistance level,
- The price is rising, the correction has not started yet. It means that the impulse wave has a bullish dynamic.
The second pattern of the growing market comes after the bullish momentum.
This pattern rules the market if the price is under correction, but at the same time, each new minimum point of the market is higher or equal to the previous one. The determination of the uptrend is observed.
It does not matter if an impulse or correctional wave is being formed. It does not matter if the market is moving a trend or a counter-trend. It does not matter if the price has overcome the level of resistance or below it. The main thing is that every next minimum point should be at the same level with the previous one, or exceed it.
Bullish correction gives these signals:
- the market follows the upward trend,
- upward positions are relevant,
- you need to look for the entry point to purchase.
Any market movement in an uptrend is a bullish momentum or a bullish correction. These two templates work on any timeframe. If you do not see their signs, then the market is not growing.
Bearish patterns work as a mirror
The first bearish pattern is called “Bearish momentum”
Bearish momentum is a situation when the price pierces the support level and moves downward.
- the last pierced level is the support level,
- correctional wave has not started yet.
Relevant positions for a decrease.
The second pattern of the falling market after the bearish momentum.
The price has pierced the support level and strengthened back up. Please note that one thing is really important: the price is below the resistance level. However, it can rise above the support level, it’s OK. Short positions remain relevant.
- All vertical market movements fit these four patterns. In order to find them on the chart easily and quickly, you need to know the properties of support and resistance levels.
- The fact of the pierced level serves as a signal of the trend presence and its direction.
- If the resistance level is pierced, it’s a bullish trend.
- If the support level is pierced, it’s a bearish trend.
- This method should be applied to any timeframes.
- With proper training, this method allows you to determine the trend in a few seconds.
How does this method work on real graphics
Let’s suppose that we want to determine in which of the four patterns the market is currently moving. It is necessary to build support and resistance lines, and determine which of these levels was pierced last:
In our case, the market has pierced the resistance level, therefore this is a bullish pattern.
The downward movement has not yet begun, which means that the market is in the “Bullish impulse” pattern:
The price has not been corrected yet.
Exercise number 2: which pattern do you see here:
Again, we see the bullish momentum. The resistance level rose higher, but it was pierced there. Since the line of resistance was pierced, and the decline has not begun, we can say that during the bullish impulse on the market, buying positions are relevant.
Let’s suppose that you see the following picture:
In order to determine the trend, we find again the level that was pierced last:
The support level is pierced, therefore, a bearish trend can be noticed. After the market tried to “grow”, but could not overcome the resistance level, then we can talk about the correction. On the pic above, you see a bearish correction. The graph also shows that the market is testing the resistance level. It is important that it wasn’t pierced yet.
Situation number 3. What price pattern we see in the market:
We see a triangle:
That’s why you cannot trade on the market.
After analyzing the graphs in this way, we did not reach the second point of the plan. We have stopped, and we’re waiting for a more favourable moment in the market.
Search for the market entry if it comes out of the triangle, piercing the support level:
The market pierced the support line from top to bottom and again became bearish.
What we’ve found out today:
- Determining a trend is a simple task. You need to determine which level was pierced last.
- If the resistance line is pierced, the market moves in one of two bullish patterns. Until the market rolls back, it is in bullish momentum. Growth correction happens if the price rolled back, but haven’t pierced the support line.
- The market is moving in one of two bearish patterns if the support level was pierced last. The bearish momentum continues until the price falls in the direction of the breakthrough of the support level, before the correction. A bearish correction is a market condition if the price soars, but each subsequent maximum point is at the same level with the previous one, or below it.
- The trend definition is based on knowledge of the property trilogy: 1, 2, 3. These are like three elephants, they hold not flat land, but a market map. It shows potential entry points into the market, exit goals, and patterns, using them the trend direction can be determined.
Train, do not be lazy, and may the profit be with you 👾
P.S. Approximately 90% of traders believe that it is enough for successful trading to know in which direction to trade, at what point to enter the market, where to put TakeProfit and StopLoss.
By a strange coincidence 😀, the percentage of traders with a small profit or with a loss can be added.
In fact, the most important points of the plan are the risk calculation, and profit potential, as well as defining the position volume. We mentioned this in the relevant articles of the blog, and we will examine in detail soon. So, stay tuned.