- What is trend?
- How to identify a trend?
- What indicators and approaches to use?
- How to trade with the trend on the machine?
Hello everyone, DmitryPetrov2 is with you again. Today we will discuss an extremely important topic. How to correctly identify and follow a trend. We will also analyze the popular trend strategy for trading the 3commas bot.
Let’s figure it out.
- 1 What is trend?
- 2 Determining the direction of the trend
- 2.1 After reading this post, you will know:
- 2.2 The most important thing when determining a trend (and it is not an indicator)
- 2.3 Trend indicator # 1: How to use Price Action and determine the direction of the trend
- 2.4 How to capture the moment?
- 2.5 Trend indicator # 2: How to understand the trend direction without a candlestick chart
- 2.6 Trend indicator # 3: How to use a moving average to determine the direction of a trend and its strength
- 2.7 Trend indicator # 4: Trend lines
- 2.8 Trend indicator # 5: How to trade the channel and find entry and exit points
- 3 How to trade with the trend?
- 4 Basic trending strategies for auto trading
- 5 Outcome
What is trend?
Translated from english trend Is a trend. The trend in the direction of price movement for a certain period of time.
There are different approaches to determining the trend. We will analyze 5 options.
Trend trading Is a trading strategy in which traders try to make a profit by analyzing the momentum of a particular currency pair in a certain direction.
Trend traders enter a long position when there is an upward trend (for example, consistently rising highs) and / or enter a short position when there is a further downward trend (for example, consistently lower highs).
3commas has previously published articles on trends.
- Types of trends. Key definitions
- Sideways trends: flats and triangles. Why are they formed and why are they dangerous [14.12.18]
- Where will the trend go: where is it worth opening and closing positions? Building a market map [21.12.18]
- MovingAverage: how trend tracking indicators work and why it is dangerous to overestimate them [6.2.19]
We will consider the topic from a slightly different angle. I will cover the moments that were not covered.
Determining the direction of the trend
It would seem that everything is easy. I drew the lines and everything became clear.
But not everything is so simple, even if you use trend indicators..
The daily chart shows an uptrend.
And when you go to the hourly chart, you can see a downtrend.
Five-minute candles can show growth again.
So what to do?
After reading this post, you will know:
- The most important thing you need to know before determining the direction of the trend;
- How to use Price Action and determine the direction of the trend;
- How to determine the direction of the trend without using a chart;
- How to use a moving average to determine the strength of a trend;
- How to use trend lines correctly;
- How to use channels in trade;
- Trend trading options;
That sounds good?
Then they drove!
The most important thing when determining a trend (and it is not an indicator)
Trend Is an illusion. Because you can manipulate the trend and see what you want on the chart..
How you can manipulate a trend?
The answer is timeframe.
Timeframe (English time-frame) or trading period – the time interval used to group quotes when building the elements of the price chart (bar, Japanese candlestick, line chart point). Wikipedia
The direction of the trend does not matter if you are undecided on which timeframe you are trading.
You can put two traders watching the same market. One will say that we are growing now, and the other will be sure that we are falling.
BITCOIN-USD Hourly Chart – GROWTH
Daily chart – FALL
5m chart – TREND REVERSE. GROWTH
Thought is clear?
Therefore, before trying to determine the direction of the trend, you must know your timeframe.
How to choose a timeframe?
It depends on your trading style. Who you are? Scalper, day trader, swing trader, position trader?
You can conventionally divide traders by types:
Scalpers – trade on the lowest timeframes, up to 1 minute;
Day traders – from 30 minutes or less;
Swing traders – 1-4 hours;
Positional traders – 4 hours and more.
When you decide on your timeframe, focus completely on it, because others will create unnecessary noise for you..
Now let’s look at 5 basic approaches to determine the direction of the trend..
Trend indicator # 1: How to use Price Action and determine the direction of the trend
Price Action – translated from English. – Price movement. This is a trading system that allows you to analyze the market only by price fluctuations – market sentiment, impulses, find trading options.
Supporters of this system believe that the price includes all the news, market sentiment. And for analysis it is important to see only a clean graph.
This is one of the most important things you can learn because it gives you valuable information about the market you are trading in (which is not available in trading indicators).
- Where traders’ stop losses can be?
- Where to expect a trend reversal?
- Where most are likely to close positions?
Let’s take a look at how to determine the direction of the trend using this trading system..
It is important to understand 3 points:
- In an uptrend, highs and lows rise;
- With a downtrend, they go down;
- In a flat market, the movement occurs without updating local highs and lows.
Uptrend – highs and lows rise
Downtrend – highs and lows fall
Flat – the direction of the trend is not defined. We go sideways
How to capture the moment?
one Catch reaching a certain price
- We put a notification on Tradingview;
- The condition will be – If the bitcoin price crosses the level of 3971.48 or another desired value, give a signal;
- Choosing an option:
- In-app notification;
- On-screen notification;
- Sound notification;
- Sending by email;
- Crossing the line
- Draw a line;
- Right-click on the line and set an alert;
- If the candlestick crosses the line from bottom to top (or vice versa, based on your trading style), then send a notification using the selected method;
- It is better to do this after a closed candle so that the signal is clearer..
Sometimes it is difficult to determine the direction when the candles are “jumping” up and down all the time.
Next, we will look at how to determine the direction without a candlestick chart..
Trend indicator # 2: How to understand the trend direction without a candlestick chart
Candles often have very long shadows on the chart. This can be confusing when analyzed. Especially if you are new to trading.
To better see the picture, you can use line graph.
This chart shows the price on a chart using only the candlestick closing points. Further on these points draws lines.
That is, you will see a curved line that will remove all noise and give you a better understanding of where the price is moving..
How to open a line chart
See the difference?
How to interpret line graphs:
- If the line moves up, it is an uptrend;
- If the line is pointing down, it is a downtrend;
- If the line is flat, it is flat.
Important to remember. This chart only shows the closing points. We do not see the maximum and minimum values for the period. It can interfere with making trading decisions..
In my opinion, the line chart is convenient for quickly determining the direction of the trend..
For the analysis of entries and exits when trading, it is better to use classic candles.
Trend indicator # 3: How to use a moving average to determine the direction of a trend and its strength
Moving average(Moving Average, MA) is an indicator that “averages” all price values for a certain period and draws a line. For simplicity, it will be denoted as MA.
This is a lagging indicator. This fact does not make it useless, because it can be used to determine the direction and strength of the trend..
How to use the indicator
Here’s a simple technique that works:
- If the price is above 200MA, then it is a long-term uptrend;
- If the price is below 200MA, then it is a long term downtrend.
Let’s open the indicator
We expose the settings
How to use moving averages to determine the strength of a trend
Besides the 200MA, you can use the short-term moving average to determine the strength of the trend..
- With a strong trend, the price is above 20MA;
- With a “healthy” trend, the price is above 50MA.
The price is clearly above 20MA;
The price is below 20MA
How to catch a signal?
- Add an indicator to the chart;
- We set an alert;
- Bitcoin-USDT price;
- Crosses from bottom to top;
- MA indicator with a value of 200;
- Send the signal after the closed candle, on which the signal appeared;
- Send a signal using the selected method.
Moving average works best in trending markets (whether strong, healthy or weak trend).
But if the market is sideways, the moving average does not matter much and it is better to ignore this indicator..
Trend indicator # 4: Trend lines
Trend line Is the tool that you draw on your charts. This will help you determine the direction and strength of the trend..
But before I get to that, you must learn how to draw trend lines correctly..
How to draw trend lines.
- Look for at least 2 points (this could be a higher low or a lower high);
- Connect the dots using a trend line;
- Find as many “touches” as possible on the trend line.
First, select on Tradingview tool – trend line.
Simple, isn’t it?
Here’s how to interpret the trendline:
- If the trendline is upward, it is an uptrend;
- If the trendline is downward, it is a downtrend.
If you want to define trend strength, notice the angle of the trend line.
- The steeper the trend line, the stronger the trend;
- The smoother the trend line, the weaker the trend.
This is what I mean:
I think this point is clear.
Let’s go further!
Trend indicator # 5: How to trade the channel and find entry and exit points
What is a channel? Channel Is a variation trend line.
The way you draw the channel and interpret it is completely identical to trend lines..
Except that the channel has an additional line that is parallel to the trend.
How do you see, channel helps you determine roughly where the price might go before it reverses. This means you can take profits ahead of time, before the price is likely to reverse..
Do you know where the trend is going? Gave the schedule
If you look only at the current price, you can miss a long-term trend; you should not fixate only on what is happening in the market every moment..
Remove the graph and look at the big picture. Leaving your working timeframe.
What’s the trend?
Moving the chart
See how important it is when you look at the big picture.?
The mistake many traders make is that they try so hard to catch minor market fluctuations that they miss major price movements..
How to trade with the trend?
As we have already understood, there are different approaches to determining the trend. There is no right, wrong, or better way.
The main thing to understand is 2 things:
- What’s the long-running trend right now?
- What type of trend?
- What is the long-term trend now?
As we defined above in the text, we determine the long-term trend using the 200MA moving averages. The price is higher – we are looking for entry points for trading on growth. The price is below 200MA – we trade short.
By the way, at 3commas it is possible to connect your account from bitmex and use the possibilities of margin trading both long and short with the help of bots.
You can read here:
- Margin trading on BitMEX
- Placing Orders and Using Bots in Trading on BitMEX
2. Type of trend
We determine what type of trend we have:
- Strong trend;
- “Healthy” trend;
- Weak trend.
- Strong trend
- The price is above 20MA;
- There are almost no rollbacks;
- The price breaks the moving 20MA shallow.
How to trade?
- If the minimum values grow, we enter when the last maximum level is broken;
- We are looking for resistance levels. A resistance level is a line above which the price could not break 2 or more times;
- If the price returned to the moving average, bounced off and went up – buy.
- After the breakdown of the previous maximum value, the price rolled back down, did not reach the previous minimum value and began to grow – enter
2. “Healthy” trend
- The price is mostly above 50MA;
- The price often retraces to the moving level, bounces and grows back.
How to trade
- We catch kickbacks. We enter on a rebound from the sliding;
- We can also trade resistance breakdown.
3. Weak trend
- The price is above 200MA;
- The sliding line shows the direction poorly;
- The trend is implicit;
- Many rollbacks to the level.
How to trade
- We trade bounces from the sliding;
- Trade resistance breakdown.
My opinion is that it is better to refrain from trading during a weak trend. It is better to choose other currency pairs, where the trend is more pronounced.
Basic trending strategies for auto trading
Let’s analyze a simple trend strategy for automated trading with 3commas bots.
Golden Cross / Dead Cross
The strategy is based on moving averages.
Golden cross – signal for bulls. Dead cross – for bears.
- Find an indicator with two moving averages.
2. First, select an indicator of the Strategy type. I wrote about the differences between indicators in the previous article..
3. Build 2 moving averages on the chart. If we are looking for a long-term trend, then we use the 50MA and 200MA periods. If scalp, then 20MA and 50MA;
I selected the Bitcoin-USDT chart on Binance. To begin with, I use the classic 50-200MA indicators and check the effectiveness of the strategy on timeframes: 4-1h, 30min-5min
Next, I will try indicators to identify fast trends, i.e. 20-50MA.
As I wrote earlier, testing will not be accurate, since we do not set a starting point. But at least let’s see the supposed entry-exit points.
Gold cross 50-200MA
- On higher timeframes, there is a high profit due to the strong growth of the bitcoin price in 2017%;
- The strategy is useless with low volatility;
- Strategy exits are far from ideal;
- You should exit by trailing or upon reaching certain critical levels.
My attention was drawn to the 15min timeframe. there were the most real results.
Let’s see the entry points.
- As you can see, the entries on the flat are not very good – either a minus or a small plus.
- Long entry delay.
- Good entry before rapid growth, but sold in the negative according to the strategy.
- As I said, it is better to exit using a different strategy..
- In general, signals are often delayed. But nevertheless, despite the shortcomings, the strategy was trading in a small plus.
Gold cross 20-50MA
- Again, big pluses on higher timeframes due to the growth of 2017;
- The number of transactions increased as expected;
- The results were not impressive.
- I think this happened due to the fact that Bitcoin was often in flat, and as we found out, you cannot trade using these indicators with low volatility.
Let’s take a closer look at the 15min chart and analyze the entry points.
- The entrances are pretty good;
- Exits spoil the picture as expected;
- It is better to exit by trailing or by levels.
Basically, strategies can be given a chance with other more volatile pairs..
What do we do
- Let’s take a simple indicator script with two simple moving averages;
// @ version = 3study (title ="Moving Average 50/200 Golden Cross", shorttitle ="MA", overlay = true) len = input (50, minval = 1, title ="Length") src = input (close, title ="Source") out = sma (src, len) plot (out, color = red, title ="LONGMA")
len2 = input (200, minval = 1, title ="Length") src2 = input (close, title ="Source") out2 = sma (src2, len2) plot (out2, color = green, title ="SHORTNMA")
- We insert it into the chart;
2. If desired, set your settings;
3. Set up notifications;
4. Set up the bot to read signals from Tradingview according to the instructions;
5. You can also set up a strategy for trading on falls. The so-called short.
- Choose 5 different coins from the exchange you trade on. For example, binance, bittrex, bitmex or whatever;
- Test 3 options of settings on different timeframes;
- Analyze the indicators of the strategy and conduct a visual analysis;
- Find those combinations of coins and settings that have been worked out best in history;
- Launch bots with a minimum order with a trailing exit;
- Be sure to set stop-losses based on your risk management policy;
- Analyze the trades in a few days. See how the strategy worked.
- Think about how you can optimize the strategy: settings of stops, trailing, entry points.
What we learned useful today:
- The value of the trend and the influence of the timeframe when determining the direction of the trend;
- How to determine the trend on the chart using Price Action;
- How to find out the trend without a candlestick chart;
- An easy way to find out the trend using moving averages;
- Trend lines and their use in determining the direction of movement;
- How to trade in the channel;
- How to use trends when trading with a trend;
- Test and trading on the Golden Cross strategy.
In the future, we will delve into trend trading and analyze more complex strategies..
DmitryPetrov2 was with you! No Pasaran!
I wish you fresh trading ideas and successful trades!
P.S. The purpose of the articles on trading strategies is purely educational in nature. And in no way are they a direct guide to action. Exchange trading of cryptocurrencies is associated with a high level of risk. Therefore, be aware of why you are buying this or that asset. Take risk management seriously.