What is a trend? You'd think that such a basic question would be easy to answer, right? But really, what is a trend? How do you define it? How do you recognize one?
The first thing to understand is that you never know you have a trend until one is already present. The beginning of a trend looks just like any little turn around in the market. Only luck can get you on the very beginning of a trend.
So, how do you know if you have a trend? I think moving averages are the easiest way to make that determination. Sure you could use the breakout of a channel, but I think that's more subjective. With the moving average, all you have to do is look at it and see what direction it is sloping. Put a thirty-five period moving average on your chart and you'll instantly have a good idea of where the trend is.
Side note: There is no such thing as a micro-trend. Let me say that again. There is no such thing as a micro-trend. On a five-minute chart, an upward move that lasts several hours is not a trend. It's not a micro-trend. That doesn't exist. It's just a move from a high to a low. That's all.
There is no trend trading on a five-minute chart.
You need to be looking at daily (possibly) weekly charts to see real trends. That makes the whole process more accurate. Sure, it's not 100 percent right. After all, you can only recognize a trend in hindsight.
How do you enter your trade at the best spot? See you in part 2 . . .
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Nathan Pennington is a forex trader and the author of Winning Forex Trading -THE Definitive Guide
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