To ensure steady profits at Forex a trader is supposed to pinpoint faultless entries and exits. It?s common knowledge, that a trend is the principal and the most compromising relevant area.
Hence, trend detection is the trader?s PRIMARY target. If ?The Trend Is Your Friend?, entries should be executed trendwise and the profit should be allowed to flow, etc., there emerge questions to touch every live Forex trader:
- what are the trend?s criteria (bullish or bearish) ? once known, it is a trader?s conventional job to enter trendwise and let the profit flow?
- if the Forex major rule quintessence is as simple as that, why 90-99% of traders suffer losses with enviable permanence?
Book I Chapter XI ?Where trends are to be chased at Forex or the trader?s faultless profit segments?, http://www.masterforex-v.su/001_011.htm analyses the Forex scholars? and modern forum-speaker traders? overwhelming chaos in the field, ranging:
- from the Charles Dow classical definition that ?a trend constitutes a vectored price travel, where each consecutive high is higher/lower than the foregoing one with each consecutive low being higher/lower than the foregoing one? (my opinion: the definition is obsolete and does not fit new Forex realities)
- to some traders? purely absurd opinions on no trends at modern markets along with Eric Nayman?s thinking of his trend varieties built upon no distinct criteria (?There are none of any strict rules, once forever established?, - E. Nayman stipulates).
One of the factors responsible for traders? en-mass deposit losses is fairly understandable from the above. If there?s no distinct definition of trend ? then the question is: should entries be effected bullish or bearish trendwise and where should the profit be allowed to flow?
Masterforex-V TREND DEFINITION
From Masterforex-V standpoint a trend is a vectored price travel between two opposite reversal patterns. In-trend movement is of zigzag nature, i.e. there is a recovery wave following each pulse wave. The pulse/recovery ratio is indicative of the trend direction. Thus:
- under a bullish trend, the uprising pulse length exceeds the corrective bearish wave one
- under a bearish trend, the bearish pulse length exceeds the corrective uprising wave one
- under a sideways flat, the pulse and recovery durations are equal.
Figure 1. Trend and recovery (For view picture see notes in end of article)
Figure 2. (For view picture see notes in end of article)
Head?n?shoulders is a USDCAD reversal pattern with a bearish trend startup, where a downward pulse is longer than an upward corrective action. Respectively, a USDCAD W1 bearish trend is alive till there is a reversal pattern.
Figure 3. (For view picture see notes in end of article)
As obvious from USDCAD W1 chart, there was no upward reversal pattern in 2003-2006. Hence the W1 bearish trend continues.
Figure 4. (For view picture see notes in end of article)
Later on in Book II ?Technical Analysis in Masterforex-V trading concept? I will stage a detailed description of each component, attributable to the trend change, but for the time being only the critical ones will be referred to.
1. A trend continues till there?s a swivel, thus increasing the importance of reversal patterns, discussed hereinafter.
Reversal patterns are found at any trend?s origination and termination. Thereby a trend constitutes the distance from one reversal pattern to another, being opposite:
- the start of a bullish trend is a reversal pattern of the preceding bearish or sideways trend
- the bullish trend continuation is a trend continuation pattern (see Book II ?Trend continuation patterns http://www.masterforex-v.su/book2.htm)being a retracement variety calling for a trendwise entry.
- the bullish trend termination being a bullish trend reversal pattern.
Here are the examples:
2. There is an arbitrary fall of classical bullish and bearish trend reversal patterns into:
a). reversal patterns resulting from a non-breakthrough of a next in turn resistance or support on a bullish or a bearish trend respectively:
- double top
- triple top
- double bottom
- triple bottom.
with reference to drawings of classical trend reversal patterns from the following books by Forex scholars:
John J. Murphy ?Futures markets Technical Analysis: theory and practice?
D. Schwagger ?Technical Analysis, comprehensive course?
A. Elder ?How to gamble and win at the exchange?
A. Elder ?Basics of exchange trading?
Larry Williams ?Long-term secrets of short-term trading?
K. Lukas ?Using Technical Analysis at the world Forex market?
A. Nayman ?Minor trader?s encyclopedia?
A. Nayman ?Master trading. Secret materials?
Figure 5. (For view picture see notes in end of article)
Figure 6
Figure 7 (For view picture see notes in end of article)
b). reversal patterns resulting from a false breakthrough of a next in turn resistance or support level:
- head?n?shoulders
- inverted head?n?shoulders
- spike.
And hereinafter in details:
A head?n?shoulders:
Figure 8. An inverted head?n?shoulders. (For view picture see notes in end of article)
Figure 9. A spike. (For view picture see notes in end of article)
Figure 10
3. Classical trend continuation patterns.
The centerline is that any trend is of zigzag nature:
- there is a counter-trend pullback following a trendwise pulse
- the pulse is always longer than the retracement being the axiom of the Elliott?s WA
- a trend continuation pattern is but the Elliott?s corrective waves variety
Therefore, each trend continuation pattern is integrated into a corrective model, whereupon a next in turn trendwise wave follows:
- a gap
- a quadrangle
- a triangle
- a flag
- a pennant
- a wedge
Below is a sample bullish flag. It is to be noted, that the bullish pulse is much longer than the bearish pullback.
Figure 11. A bullish pennant. (For view picture see notes in end of article)
Figure 12 A bullish wedge. (For view picture see notes in end of article)
Figure 13 The gap. (For view picture see notes in end of article)
Figure 14 (For view picture see notes in end of article)
A quadrangle with the pulse and corrective waves equal to each other
Figure 15 (For view picture see notes in end of article)
Below are several sample trend continuation models within a single trend. Of interest is the bullish wave transfiguration into a pulse and the bearish wave one ? into a corrective action, thus governing a bullish trend continuation.
Figure 16 (For view picture see notes in end of article)
Figure 17 (For view picture see notes in end of article)
CRITICISM OF CHARLES DOW?S CLASSICAL TREND DEFINITION
In last century thirties Charles Dow has proposed a trend definition up to now wandering from manual to manual and injuring traders in an irremediable manner. Please, once again go through Charles Dow?s definition: ?a trend constitutes a vectored price travel, where each consecutive high is higher/lower than the foregoing one with each consecutive low being higher/lower than the foregoing one?.
Is it clear why his definition fails to properly account for modern trend realities?
According to Charles Dow, the trend core criterion is restricted to the fact that ?each consecutive high is higher/lower than the foregoing one with each consecutive low being higher/lower than the foregoing one?.
It leads to erroneous logics of stops allocation (?safety cushions? per Bill Williams) offered in practically all Forex manuals: one to several points lower the previous low at uptrend or the previous high at downtrend.
Various timeframe figures below are illustrative of how this classical trick is used by the Forex Game Organizer to blow off traders? stops, positioned in strict accordance with Dow?s trend rules, included into the world?s Forex manuals.
What type of trend is here, proceeding from Charles Dow?s provisions? Please, take pain to calculate how many highs are higher than the previous ones and how many lows are lower than the previous ones. And above all! How many traders? stops have been shot down here?
Figure 18 (For view picture see notes in end of article)
Figure 19 (For view picture see notes in end of article)
GENERAL TREND DEFINITION OUTLINE AS SEEN BY Masterforex-V TRADING CONCEPT.
1. A trend is a vectored price travel between two opposite reversal patterns.
2. In-trend movement is of zigzag nature, i.e. there is a recovery wave following each pulse wave. The pulse/recovery ratio is indicative of the trend direction.
3. Classical patterns are incorporated within a recovery (pullback) model, followed by a new trend wave.
And now, assuming these pares 1-3, we will analyze the above figure 18.
By all classical canons the previous low of 1.9647 is to be followed by:
- the preceding trend denial according to Charles Dow?s ?uptrend tops and bottoms being higher than the previous ones?
- stop-loss orders placement.
Instead of stop-loss orders I resort to hedging.
I am always putting a series of questions to staunch supporters of stops being placed in conformity with Forex canons:
- Are You sure that the trend won?t reverse at that point?
- If negative, why should You be placing a stop?
- But if You are certain, why don?t You effect a concurrent opposite entry?
- What is Your piece of mind on how many traders in the world have placed stops along with You?
- Are You sure that the Forex Game Organizer will not be tempted to knock down all the world traders? stops by way of a single gesture and to continue urging the previous trend further on?
The above sample chart of dated 01.12.2006 furnishes strong evidence of:
- WHAT FOR the world traders are trained to place stop-loss orders at the same point
- WHAT FOR obsolete theories of Charles Dow and other Forex scholars are published in millions of copies, being sufficient for ALL the traders throughout the world
- WHY the 97-99% traders? loss statistics is identical through all the countries.
So, what?s to be done to avoid plopping down into losers? swamp?
AT LEAST, You are to try to get the understanding of WHERE and WHY traders loose their deposits whereas, AT MOST, You are to attempt to elaborate Your own entry and exit algorithm.
To this end You are to give scrutiny to the chapters on reversal patterns and trend continuation, incorporating a detailed investigation of:
- shadow details of each trend retracement (recovery) - see the chapter on trend continuation patterns
- shadow details of each trend swivel ? see the chapter on trend reversal patterns
- inaccuracies, innuendos and direct errors committed by Forex scholars on the issue.
Putting it otherwise, You will have to find problems solution, many of the scholars (John J. Murphy, D. Schwagger, B. Williams, A. Elder, K. Lucas, A. Nayman, etc.) have failed to find.
AND BY WAY OF A PROMPT FROM Masterforex-V?
A head?n?shoulders reversal pattern should take shape to ensure trend reversal.
Figure 20 (For view picture see notes in end of article)
Options A and B are indicative of the points where the head?n?shoulders reversal pattern could be feasible.
Note:
Full text of this article and pictures of examples http://www.masterforex-v.su/002_000_01.htm
If you wish to be trained on Trading System Masterforex-V - one of new and most effective techniques of trade on Forex in the world visit http://www.masterforex-v.su/
Professional Trader from 2000 year.President of Masterforex-V Trading Academy.Author of Books:
1. Trade secrets by a professional trader or what B. Williams, A. Elder and J. Schwager not told about Forex to traders.2. Technical analyses in Trading System MasterForex-V.3. Entry and Exit Points at Forex MarketFree Books Website:http://www.masterforex-v.su http://www.masterforex-v.org
