Post of the Day: Changing Trends
I am looking at a lot of Daily charts and getting confused. How can you tell the trend on a chart when they appear to be transitioning?
Power Course Instructor’s Response:
I have posted two Daily charts of the NZDJPY below…each shows a different technique. Feel free to combine them or use them independently of one another.
The first chart has a 200 period Moving Average placed on it…the green line. As a general rule, if price action is below the 200 MA the pair is considered to be in a downtrend and if price action is above the 200 MA the pair is considered to be in an uptrend.
The above being said, let’s expand a bit. If the pair is trading below the 200 MA BUT is moving closer and closer to 200 MA, building higher highs and higher lows in the process, the downtrend is weakening and the pair is coming ever closer to being in an uptrend. If price action is above the 200 MA but is building lower highs and lower lows and is closing in on the 200 MA from above, the uptrend is weakening and is moving closer and closer to being in a downtrend…it truly is a matter of degrees.
The second chart was put together by another course instructor and quite graphically depicts a trend change by showing a downtrend turning into an uptrend. Continual lower lows and lower highs represent a downtrend while higher highs and higher lows exemplify an uptrend. While they transitioning one into the other, you are correct, it can be a challenging call to make.