How to Identify Change in the Trend? or How to Identify Trend Change?
NEW TREND:
Having explained what are the different types of trends and trend consolidation is and what criteria need to be fulfilled for each of those scenarios. Let’s now look what needs to happen so we can clearly say that a new trend has started.
Newton’s First Law of Motion states: Every object in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it.
It’s pretty simple, a trend in any given timeframe will continue in the same direction unless an external force. in our case, a bigger timeframe or an extremely news worthy event, is applied to it.
A trend change in any given timeframe usually happens (not always) when a bigger timeframe gains control or some extreme news worthy event happens.
Let’s take this a step further and see how a trend changes.
In order to have a new downtrend after an uptrend either one of the following scenarios has to happen.
1. A new bearish trendline can be drawn AND at least one demand zone is taken out.
2. Two demand zones were taken out.
Now, don’t confuse this with the rules we have discussed trend consolidation. This is different from the trend consolidation rule. Let’s look at it closely. There are 2 possibilits here as well.
New Downtrend happens when, a new bearish trendline can be drawn AND at least one demand zone is taken out.
For instance:
· Current timeframe was in an uptrend and price moves down sharply and bullish trendline is broken.
· Now price is in bullish consolidation.
· Price goes down furthermore and at least one demand zone has been taken out.
· In the process, price forms new peaks and if we can connect two new peaks with a bearish downtrend line, then the timeframe will now be downtrending.
· The difference between a bullish consolidation and a downtrend is the possibility to connect two peaks where the second leg of the second peak makes a lower low than the first peak’s second leg
New Downtrend happens when, Two demand zones were taken out.
For instance:
· There are times when price sells off so fast that drawing a bearish trendline connecting the latest two peaks is just not possible.
· However due to the strength, price managed to take out two demand zones. When that happens, (i.e) two opposing demand zones taken out, that chart will be in an official downtrend.
Likewise, in order to have a new uptrend after a downtrend either one of the following scenarios has to happen:
1. A new bullish trendline can be drawn AND at least one supply zone is taken out.
2. Two supply zones were taken out
A new bullish trendline can be drawn AND at least one supply zone is taken out.
For instance:
· Current timeframe was in an downtrend and price moves up sharply and bearish trendline is broken.
· Now price is in bearish consolidation.
· Price goes up furthermore and at least one supply zone has been taken out.
· In the process, price forms new valleys and if we can connect two new valleys with a bullish uptrend line, then the timeframe will now be uptrending.
· The difference between a bearish consolidation and a uptrend is the possibility to connect two valleys where the second leg of the second valleys makes a higher high than the first valley’s second leg
Two supply zones were taken out.
For instance:
· There are times when price rallies so fast that drawing a bullish trendline connecting the latest two valleys is just not possible.
· However due to the strength, price managed to take out two supply zones. When that happens, (i.e) two opposing supply zones are taken out, that chart will be in new and official uptrend
Also, please keep in mind the level on top of level scenario mentioned earlier
For more details and examples, checkout: