I already wrote an article about ways определения тренда. But today I want to talk about the method price action – analysis of peaks and troughs, it also worked the old fashioned way and now it works fine. Of course there are many “машинных” methods of determining the trend and the use of indicators, but they are all lagging. The best indicator – this is the price itself.
Посмотрев на любой schedule, it can be seen that the price moves in a zigzag pattern. There is a trend, which is replaced by a correction, then rally again and then correction and so on. This is what it is peaks and valleys. The price moves up and there is an alternation of rising peaks and rising troughs. But when there is a change from rising peaks and troughs to descending peaks and troughs, then it is considered, that the trend has reversed.
На примере 1 вы видите growing peaks and troughs. But at the point 1 the peak could no longer break above the previous one, and later the price crossed the point 2 – previous depression. In such a situation, we consider, что тренд изменился.
In a downtrend, the opposite is true. We have a series of descending peaks and troughs. But when the price fails to move below the previous trough (dot 3), and it goes above the previous peak (dot 4), we can already assume, that there is a trend change again. We are talking about such a change in trend, when we are at the point 5. And we see, how the alternation of increasing peaks and troughs is maintained in the future.
Of course, there are also doubts. Let's look at an example:
We see, what's at the point 1 the price dropped below the previous trough, but we still don't know anything about the peak. To receive a signal about a reversal, we need to wait for the breakout of the formed bottom (dot 2). This will be a signal for a trend change.. Why is it necessary to wait for the breakout of the previous bottom? It's that simple – so as not to run into a rally, as in the example 4:
Naturally, you need to combine this method of trend analysis with other, and also pay special attention to support and resistance levels. But this approach, even in itself, is very powerful., because it is associated with the psychology of traders, and is not a lagging indicator.
Консолидации
Pullbacks are often formed as a trading range.. This situation can also be used in the context of this theory and trade on the breakout of the range boundaries. The accumulation of such peaks and troughs within the range forms support and resistance levels.
And don't forget about the time factor.. Higher time range produces stronger signals, than for example intraday charts. And the stronger the trend was, the stronger the reversal can be.
On the example of the BAC stock, we see, what's in November, декабре 2008 year and January 2009 there was a series of falling peaks and troughs. The reversal signal was the breakout of the peak in early March 2009 of the year. After that, the trend changed to an upward trend, followed by a series of growing peaks and troughs.. In June July, there were suspicions of a trend change again, but there were no lower depressions. Происходила consolidation in the range. And the signal to continue the movement was a breakdown of the range and further upward movement with growing peaks and troughs.
Certainly, not so simple, as it seems, but it is really a very handy and simple tool, which can significantly improve the quality of trading and understanding of the market.
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