Define a Trend Without Quantifying Higher Highs, or Lower Lows

Trend – What are you, Beast?

Sometimes a friend, sometimes a foe, trends are common patterns I’m sure you know well. Or do you?…

The truth is, as common as the word “trend” is, when you ask 20 people to define it, you will get 20 different definitions, and most of them so vague there is plenty of room for flexing the interpretation, depending on the market or the chart du jour.

Most of the time, we are vague about familiar things we don’t even realize we’re being vague about. For example, when you give someone driving directions to your house, or tell someone how to make a pot of spaghetti. You think you’re being very specific because…

In the end, you always work it out.
That’s kind of like trading.

You know you can always get back to your house, and your spaghetti may not be the same twice, but it’s always spaghetti.

So, what’s a trend, anyway? Can you define it in a way that tells you or, better yet, someone else how to trade it? If your answer is no, spend a little time here.

It’s in your own best interest to be clear about trading something as common as a trend.

Most people define trends in terms of higher highs or lower lows, but when you start trying to put “rules” around your tradeable definition of a trend, you’ll run into some problems.

A person might say, “A trend demonstrates higher highs, or lower lows.” Really? how many bars of “higher highs” or “lower lows” are required to define a trend?

Another might say, “A trend is when price generally moves in one direction.” Really? In general, for how long? 30 seconds? 30 Minutes? Days?

I mock the saying, “The trend is your friend until it ends,” because most people don’t even know when it started! Let alone when it’s about to end, or reverse and run up a margin call.

This discussion is about trading. Trends are common patterns. Sometimes you love ’em, sometimes you hate ’em.

The sooner you define a trend, the sooner you can trade it like a boss!

Define a trend in such clear terms that it applies to any time frame, any symbol, any market, any time of day. Ok, I’m getting nervous right now, but here’s my definition.

When price stays to one side of 2 moving averages (the 50 and 100 SMAs, to be specific) for 30 bars or more without going to the opposite side of both, it’s a trend.

Define a Trend GraphNo higher highs or lower lows (or lack thereof) are going to throw you off, because now you know what makes a trend. It’s the duration of time price spends on one side of 2 moving averages. You can assume that it will continue to make progress in one direction and, in fact, make higher highs or lower lows over time, but you won’t be fooled when it goes sideways for a little while, or when there’s a break in that “higher highs” pattern.

This is true whether you’re charting on a 5-minute-time-frame chart, or the longer-term charts. This makes sense, because a “trend” on a 5-minute chart won’t last as long, but it’s still 30 or more bars!

The benefit of knowing when the market is definitively “trending” is that you can have expectations about market behavior. Expect the trend to continue, don’t expect it to end. Have no patience with a losing counter-trend position. And, don’t be one of those people who says “It can’t go on much longer…” because it can! And, it will!

It’s a trend!

Isn’t it a relief to have a real one-size-fits-all definition of a trend? Now, what are you going to do with it?

Jennifer has been trading Forex since 2001. She developed a strategy to anticipate market movements based on repeatable patterns seen in every market.

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