How to Gauge the Trend of a Market

How to Analyse the Trend of a Stock, Currency, Indice or Commodity

If you've been long enough in the trading business, you should know that the most profitable trades are those that follow the dominant trend of the market you are trading. My goal in this article is to show you a few ways to gauge the trend of a market, in order to tune into its flow.

First you need to understand that the market is fractal in nature, so every trend has subtrends or, better said, every timeframe has it's own trend. You can be in an bull trend (price is rising) on a daily chart and, at the same time, in a bear trend on the 1 hour chart. Depending on if you're a short-term, medium-term or long-term trader, you are interested in specific timeframes. Personally, I trade the 1 minute and 5 minute charts, but I try to jump into 1 hour short-term trends, preferably in synch with the daily trend. The best trades are those entered when multiple timeframes are in synch. For example, when you buy on the 1 minute chart, the odds are stacked in your favour if the 5 minute, 15 minute, 30 minute, 1 hour and 4 hour charts are all showing a bull trend.

If you haven't yet gained the necessary experience to see the trend on a naked chart, the best tools you can use are the EMA (exponential moving averages).

On a daily chart, I recommend using the 50, 100 and 200 day EMA's. If the price is above the 50 day EMA, we are in a bull trend. If it is below it, we are in a bear trend. The 100 and 200 day EMA's can act as good support/resistance levels when the price touches them on the way down/up.

The short-term hourly trend is seen best using a 24 hour EMA. You're in a bull trend above it or in a bear trend below it. Remember to apply all these EMA's to the closing price, because that is the most relevant price component.

And last, but not least, I will tell you another trick that can do wonders for your short-term trading, although the idea is very simple. Monitor the opening price of the day and if the market is above that, then your bias should be bullish. If, instead, the market drops below it, your bias changes to bearish.