There is a powerful factor why so many articles have been written about trading “with the trend.” This is because it may be the most vital thing you can do to put the odds in your favor when it comes to trading victory.
Yet many traders either forget this trading wisdom or do not feel it is vital. And so follows that most traders unsuccessful.
One of the strongest complaints I have read about “trading with trend” is that it is all relative. That is right! It depends on several aspects, such as time trade you are analysing, the time frame you want to trade within, and what you are doing to determine the trend.
Some have advised that determining the trend is “subjective” that is not right.
The definition of trend is objective and pretty clear.
What is Swing tops or bottom ?
A “Bull” style is where you have higher swing bottoms. A “Bear” style is where you have lower swing tops bottoms.
Therefore, the just thing left is to describe what a top swing or swing bottom happens to be.
In the easy of terms, a swing simply favors to the change of direction of the swing line. If the swing line that moving from new low to new low is moved to a new top, that last lower-low is called as “swing bottom.” If the swing line that is moving from new high to new high is moved to a new low, that last top-high is called as “swing top.”
Plotting Swing top and bottoms
The rules for moving the swing line is very easy. First, you must plan whether it will be based on 1-bar, 2-bar or 3-bars. The one-bar swing reflects the more little-term swings, where the two-bar and three-bar are used for the longer-term swings that happen less frequent than the one-bar.
So say that we want to isolate the one-bar swings. Begin from any important market bottom or top. In this example, we will begin from a major bottom.
Now, once a price bar forms a higher-high than the price bar preceding it, we call that a higher-high bar. Draw the swing line the major bottom low to the new higher-high. Now, for every high that is higher than the high where the line presently sits, you would move the line up to the fresh higher-high. But if a price bar comes along that makes a lower-low than the preceding bar low, the line must ‘swing’ down from that last higher-high to that low. For each low that forms lower than the low where the line presently sits, the swing line moves down to that new lower-low, until such time that a price bar makes a higher-high again.
Every bar where the line was at the low when it swung up to a fresh high is known as “swing bottom.” Every bar where the line was at the top when it swung down to a new low is known as “swing top.”
What is Outside Bars
There will be time when a bar makes both lower-low and higher-high. These are known as “outside” bars. To deal with these, we must decide which formed first during the trading day, the new higher-high or new lower-low.
If early in the day it formed the lower-low first, then before the close it formed the higher-high, the line should be moved first to the lower-low and then to the higher-high of the outside bar.
Analysing Swing levels
Comparing these swing bottoms and tops to previous bottoms and tops, we can plan the trend for whatever time frame we are analysing. If we see a sequence of higher swing bottoms, the trend is “bullish.” If we see a sequence of lower swing bottoms and lower swing tops, it is “bearish.” It is easy for a swing bottom to form lower than the previous in a bull trend still known as bull trend. But if it forms lower than the end two, the trend has likely replaced. The reverse is right for bear trends. If a swing top forms higher than the end but not last 2, it can still be a bear trend. But if it forms higher than 2 previous, the trend may be replacing.
The rules for two-bar and three-bar swings need just a little adjustment. Rather than moving up to each new higher-high or down to each new lower-low, you must reach a count of two or three before advancing the swing line.
Trading with Swing levels
When trading with the trend, you can use these swings as price positions to adjust your trailing SL. If going long in a bull trend, each fresh higher swing bottom is a price level where stop-loss could be moved only below of to save accumulated profits. If sold in a bear style, each minor swing top shows a price rank where a stop-loss could be moved only above.
Because price tends to go in the way of the style longer than in counter-trend moves, it gives the maximum odds of victory. You now have an easy method for determining the trend along with an easy stop-loss plan. Use it alone or with other ideas you have found helpful.
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