Trend and the variations within the diapason
The trend exists as long as prices maintain the tendency to rise and to fall through time. When the trend is uprising, every following support and resistance level exceeds the preceding. During the downtrend every following level of low and high prices at support and resistance is lower, than the prior. Variations in the support and resistance diapason happen approximately at the same levels.
The tactics of the trend operations and operations with the variations within the diapason is dissimilar. Open long-term positions on the rising trend, and short-term positions on the falling one, bring profit during the trend existence. On the contrary, when the variations take place in the diapason, it is necessary to close at the slightest signs of the reverse.
The second difference in the strategy of acting during the trends and the variations within the diapason concerns different attitude to weak and strong market trends. Being in the trend, one should keep to the strong tendencies, buy at the uptrend, and sell when the trend goes down. During the variations in the diapason it is necessary to follow the opposite directions, i.e. to buy when the market is weak and to sell when the market is strong.
The most difficult task of the technical analysis is to define trends and variations in the diapason. The uncertainty of the situation leads to inevitable mistakes.
The professionals should be ready to close losing positions quickly without being stubborn. Trying to prove one’s right on the market can cost too much.
The methods and techniques
There is no unique and magic method of defining trends or variations in the diapason. Actually, there is a number of strategies, which should be applied in combination. Besides, when they confirm each other, it serves as an extra factor, strengthening the reliability of its info. In the case, when they contradict one another, it’s better to refrain from conducting operations on the market.
1. Estimate the figures, made up by the high and low prices. If during the support and resistance, the high and low prices form the rising chain, they indicate the uptrend. If the sequence is going down, it is a downtrend.
2. Draw the rising trend line, connecting the recent important points of the low prices; and the line of the decreasing trend, linking the recent important points of high prices. The incline of the recent trend lines shows the current trend. The significant point, corresponding to the lowest or the highest price, for the 24-hour chart is taken for at least one week period. The more charts one analyzes, the more experience in defining these points he gets. The technical analysis is a science, as well as an art.
3. Plot a curve, corresponding to the 13-day EMA. Its inclination’s direction shows the trend. If the EMA has no new values of high and low prices within the month, this denotes the period of variations in the diapason.
4. Some market indicators also help to identify the trend - MACD, Directional system and others. At the early stage of a trend Directional system gives good results. The indicator VHF (Vertical Horizontal Filter) is formed especially to identify the moment of the trend appearance.
Trade or wait
No matter what methods are used, there is always a rule of financial management. The sum, equal to the difference between the sum at the position opening and at the stop loss closing, should not exceed 2% of your funds, no matter how attractive the deal may seem.
The tactics of the financial management is different for trends and for variations of the market inside the diapason. When there is a trend, one should open positions involving rather small sums, though it should be closed, when the difference in prices is high. When there are variations in the diapason, one can open using larger sums, but close at the slightest changes.
During the trade applying diapason variations, it is very important to choose the correct moment for opening the deal. While for the positioning along the trend it is of no such significance.
The professionals prefer to trade during diapason variations because they have more possibilities of immediate management of their funds with less indirect costs (commission charges, losses resulted from the ask/ bid price difference, and so on). Amateurs and those, who are not closely related to trade platforms, should mostly use trends.
Discrepancies connected with the different time bases
The overall picture about the current conditions on the market, received from the charts which were plotted on the different time bases, can be contradictive.
If there are doubts as to the presence and character of trend during the chart analysis, one should turn to the diagrams with the larger base period. This is the main principle of the Triple Screen trading system plotting.
One of the widespread misbelieves is that success depends on the speed of the information receipt and the rapidity of operation executions in the trading system.
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