For successful and stable earning funds on the Forex market, a trader needs to define sections of the fault free opening and closing of deals. It is well known that it is trend, which is the main and the most optimal section.
This is why meaning of the question on definition of trend shall be PRIMARY for a Forex trader. If "The Trend is Your Friend", deals should be opened by trend only, "to allow income to flow" etc., then, naturally some questions arise with every real Forex trader:
* give us clear definitions of trend criteria (bullish or bearish) – after that, it is a matter business for a forex trader – to open a deal by trend and "to allow income to flow".
* then why 90-99% of traders constantly lose their deposits at Forex, if essence of the most important and simple Forex rule is so simple?
Book I, Chapter 9 “Classification of the Masterforex-V trends for real trading at the forex market” gives analysis of complete chaos on this issue with the Forex classics and our days traders, who commented on this issue at forums:
* starting from classic definitions of trend by Charles Dow: "trend is a directed movement of prices, where every next following maximum is higher/lower as compared with the previous one and every subsequent minimum is higher/lower as compared with the previous one" (this, to my opinion is outstanding and not suitable for the modern forex market reality).
* and ending with absolutely absurd opinions of some traders on absence of trends at present days markets as well as Eric Nyman’s opinion on variety of trend that are built on absence (!) of clear criteria: "There are no strict rules, which are fixed once and forever", according to E. Naiman.
Hence, one of the reasons becomes clear why a great number of forex traders keep losing their deposits. Once there are NO clear and understandable definitions of trend – then on WHICH trend (bullish or bearish) deals shall be opened and WHAT direction "to allow income to flow"?
Definition of the Masterforex-V trend
from the point of view of the Masterforex-V trading system "Trend – is a directed movement of prices between two reversal patterns going opposite directions. Movement on each trend is zigzag looking – the rollback wave follows each impulse wave. This balance of impulse and correction between them indicates the trend direction. So,
at
* bullish trend – a wave of rising impulse is longer than correction bearish wave.
* bearish trend – length of bearish impulse is longer than correction rising wave
* side flat – impulse and correction lengths are similar.
Diagrams
head and shoulders as reversal pattern by currency pair USDCAD and beginning of bearish trend, at which
* impulse down is LONGER than correction up
* accordingly, bearish trend at w1 by currency pair USDCAD continues until opposite direction reversal pattern occurs
As you can see at this drawing on w1 there were no reversal patterns UP in 2003-2206ã by currency pair USD/CAD, bearish trend on w1 was continuing
Further, in Book 2 “technical analysis in the Masterforex-V trading system”, I will describe in details the characteristics of each trend measuring element, and now, I will only identify its critical elements
1. Trend continues until its reversal point occurs. From here, we derive the role of the trend reversal patterns, which are considered further in the Book
any trend shall start and end with one of the reversal patterns, described later. Thus, a distance from one reversal model of trend to the opposite reversal pattern of trend and is the TREND.
* beginning of bullish trend – one of reversal patterns of the PREVIOUS bearish (or lateral) trend
* continuation of bullish trend – one of the trend continuation patterns (for example, Book 2 trend continuation patterns
it is a variety of rollback, at which it is necessary to open a deal by trend)
* end of bullish trend – one of the bullish trend reversal patterns
For example
2. Classic reversal patterns of trend can be conventionally subdivided into the following:
à) reversal models resulting from failure to penetrate the next resistance or support level (at bullish and bearish trends accordingly)
* double top
* triple top
* double bottom
* triple bottom
Diagrams of classic reversal patterns of trend from manuals by Murphy, Shwager, Elder, Luka, Niman
John J. Murphy technical analysis of futures markets: theory and practice
D. Schwager in his manual technical analysis. Full course
À. Elder. How to gamble and win at the stock exchange
À. Elder. Basics of exchange business
Larry Williams. Long-term secrets of the short-term trade
Ê. Luka. Application of technical analysis at the world currency market
E. Niaman Little encyclopedia of trader.
E. Naiman. Master trading. Secret materials
b) reversal models resulting from false penetration of the next resistance or support level
* head and shoulders
* reversed head and shoulders
* thorn
head and shoulders
reversed head and shoulders
thorn
3. classic trend continuation patterns
Essence and meaning of the trend continuation patterns
movement of any trend is zigzagging
* impulse BY trend is followed by rollback AGAINST the trend
* impulse is always longer than correction (Elliot wave analysis axiom)
* trend continuation patterns – these are VARIATION of the Elliot recovery waves
this is why each of these continuation patterns of trend characterizes recovery model (rollback), after ending of which the next trend wave follows
* gap
* quadrangle
* triangle
* flag
* pennon
* wedge
Example of bullish flag. Pay attention to for how many times bullish impulse is LONGER than rollback (bearish recovery)
Bullish pennon
bullish wedge
Gap
quadrangle, impulse and recovery waves are EQUAL
Examples of several continuation models of trend on one trend. Later, the bullish wave transforms into impulse, and the bearish one – into recovery, defining continuation of the bullish trend
Criticism of the classic definition of trend by Charles Dow
In 30th of last century Charles Dow made a classic definition of trend, which until now migrates from one manual into another, causing irreparable harm to forex traders. Read carefully the definition by Charles Dow one more time "trend is a directed movement of prices, at which every subsequent maximum is higher/lower as comparing with the previous one and every subsequent minimum is higher/lower than the previous one"
Is it clear now why Charles Dow does not meet realities of the modern trend?
The main criteria of trend by Charles Dow – "every subsequent maximum is higher/lower as comparing with the previous one and every subsequent minimum is higher/lower that the previous one".
Hence, we derive logic of established stops ("safety bag" by Bill Williams) practically in all Forex manuals – from one to several items lower as compared with the previous minimum at the ascending trend or maximum at the descending (bearish) trend.
Next follow diagrams of the forex market trading of different timeframes, describing how this classic method for establishment of stop-losses is intensively applied by the Forex game Manager for knocking those Forex traders stops down that are established strictly in accordance with the trend regulations by Charles Dow and of the world Forex manuals.
What is the trend here, based on definitions by Charles Dow? Count how many tops that are higher that the previous ones, and bottoms that are lower than the previous ones as well as stops were knocked down from traders here
General conclusions about trend from the Masterforex-V trading system
1. Trend is a directed movement of prices between two reversal patterns going opposite directions.
2. Movement on trend is zigzag looking – the rollback wave follows each impulse wave. This balance of impulse and correction between them indicates the trend direction.
3. Classic figures – this is a correction model (of rollback), upon completion of which, follows the subsequent trend wave
Let’s consider the above example, based on these positions
in accordance with all classic standards, the following are lower than the previous minimum (1.9647)
* cancellation of the previous trend (roots – in definition of trend by Charles Dow, that "top and bottom points on the ascending trend are HIGHER that the previous ones")
* establishment of stop-losses (instead of stops I apply a lock method – see Book 1. I always question strong supporters of stops, which are required to be OBLIGATORY installed as per Forex standards: "Are you sure that trend in this point will REVERSE? If you are not sure, then why do you put stop? If you are sure, why don’t you open order to the opposite side simultaneously with the stop? How many more traders in the world but you, to your mind, have established stop-loss LIKE YOU? You are sure that Managers of the Forex games will not be tempted to kill all traders all over the world with one move, and after that to continue the PREVIOUS trend again.
This example is of trade, dated 01.12.2006 and it is the demonstrative example for the reason why:
* Traders all over the world are taught to establish stop-losses in ONE and the same point
* Outstanding theories by Charles Dow and other Forex classics are printed in million copies for ALL forex traders
* Statistics of traders losses – 97-99% coincides in all countries in the world.
What is required in order not to become one of the losers?
At least, try to realize WHERE and WHY those traders-losers lose their deposits and at the maximum, determine YOUR line for opening and closing of deals.
For this purpose, study in details chapters describing reversal patterns and continuation of trend. In each one I highlight the thorough and detailed analysis of the following
* nuances of each rollback (recovery) of trend – see chapters about trend continuation patterns
* nuances of each trend reversal model – chapters about reversal patterns of trend
* analysis of inaccuracies, omissions and direct mistakes of Forex classics on those issues. This means that for successful business at Forex you will find all those problems in each chapter of the book and you will have to find solution of the problems, which could not be resolved by many Forex classics - John J. Murphy, D. Schwager, B. Williams, À. Elder, Ê. Luka, E. Naiman and others.
Prompting from the Masterforex-V trading system
Reversal pattern head and shoulders had to be applied for changing trend in the abovementioned example
Options A and B indicate points where the reversal pattern down head and shoulders was possible
You can discuss the chapter with the Academy members by following the link
Read more:
Chapter 2. Levels of resistance and support in Masterforex-V Trading System >>
Chapter 3. Actual and false breakout of the resistance and support level. Rebound from technical level.>>
Chapter 4. Technical levels of Forex by Dow Jones agency. >>
Chapter 5. Pivot point of currency pairs >>
Chapter 6. Slanted Channels, as a tool of the Forex market analysis >>
Chapter 7. Opening of positions when using Slanted Channels >>
Chapter 8. Slanted channels in the Masterforex-V trading system >>
Chapter 9. Classic figures of technical analysis - Trend Reversal >>
Chapter 10. Classic figures of technical analysis - Trend Reversal (ending) >>
Chapter 11. Technical analysis - patterns of continuation of trend - rectangle >>
Chapter 12. Patterns of continuation of trend - Gaps >>
Chapter 13. Patterns of continuation of trend - flag, pennant and wedge >>
Chapter 14. Models of the Forex technical analysis - triangles >>
Chapter 15. Symmetrical triangle - regularities and traps >>
Chapter 16. Ascendant and descending triangles - secrets of the strong signals for opening the positions >>
Chapter 17. Expanding triangle - unresolved problems of classics of the Forex technical analysis >>
Chapter 18. Trading On News: mistakes and unresolved secrets of classical analysis >>
Chapter 19. Trader's code of good practice by news under the Masterforex-V trading system >>
Chapter 20. Ally pairs: which gauge at forex is the most unbiased (impartial) and precise. >>
Book 3. Points of opening and closing of positions at the Forex market (basic course) >>
REPORT ERROR
