Identifying the trend: three simple methods that work

Trade with the trend is the most repeated advice in this business. The trouble is that few people
define what a trend is or how to tell it is still there. These three methods are all simple and
sufficient.

Method 1: the structure of highs and lows

The most basic approach, needing no tools at all:

• Uptrend — each high above the last, each low above the last.
• Downtrend — each high lower, each low lower.
• Range — no clear sequence either way.

The signal a trend has ended: a low in an uptrend gets broken. That is the first
break in the sequence, and it deserves more attention than any indicator alarm.

Method 2: a long moving average

Put a 200-period MA on the timeframe you care about:

• Price above it and the line sloping up → uptrend.
• Price below it and the line sloping down → downtrend.
• Price crossing back and forth with the line flat → no trend; stand aside.

Strength: objective, no judgement required. Weakness: slow, and in a range it produces meaningless
signals — but the third condition above deals with that.

Method 3: comparing timeframes

A trend depends on the chart you are looking at. A fall on H1 can be a small pullback inside a D1
uptrend.

A practical rule: establish the trend on a
timeframe two steps above the one you trade, and only
trade with it.

• Trading M15 → establish the trend on H4.
• Trading H1 → establish it on D1.
• Trading H4 → establish it on W1.

Combining all three

The three should agree. When they conflict — structure on H1 says up but price sits below the D1
200 MA — the market is between phases, and a transition is when the odds are worst. Standing aside is
a reasonable decision.

More important: recognising when there is no trend

Markets range most of the time. Applying a trend strategy in a range is a systematic source of
losses, because every breakout signal is a
false one.

Signs of a range:

• Price returning to the same area repeatedly in a short span.
• Moving averages clustered together and flat.
• Candle ranges narrowing.

In that environment the right choice is usually to cut size, or stop entirely until the structure is
clear again.

This article is for information only and is not investment advice. Conditions and fee levels are published by the brokers and can change at any time — check with the broker you actually use. Leveraged forex and CFD trading carries a high level of risk and can cost you your entire deposit.