One of the most important concepts of technical analysis is the “trend” and every good trader has to know how to gauge the trend before trying to enter into a position. The most profitable trades are those taken in the direction of the dominant trend (longs in uptrends, shorts in downtrends). I will show you a few methods by which you can see the trend of a market. We will look at some EURUSD charts.

First, you need to understand that the market is fractal in nature, meaning that every trend has subtrends, or, better said, every timeframe has it’s own trend. You can be in an uptrend on the daily chart, but in a downtrend on the 1 hour chart. Depending on wether you’re a short-term, medium-term or long-term trader, you are interested in specific timeframes. Personally, I trade the 1 minute chart, but I try to jump into 1 hour short-term trends, preferably in synch with the daily trend.

Gauging the daily trend (medium-term)

EURUSD Daily chart - uptrend (bullish)

I plotted three EMA’s (Exponential Moving Averages) on this daily chart of EURUSD. The red EMA is a 50 day EMA. The green one is the 100 day EMA. The blue one is the 260 day EMA. These three are monitored by institutional traders. Some people also monitor the 20 day EMA, but I found that to be rather choppy. As you see from the chart, we are currently moving above all the three EMA’s and the red 50 day EMA has provided excellent support over the last 6 months. Everytime price has touched the 50 EMA, it has bounced back and continued it’s bull trend. We are clearly in a medium-term bull trend.

If we broke the 50 day EMA, I would assume we’re in a downtrend, but wait for price to use the 50 EMA as a resistance to confirm my view. Then I would watch out for bounces on the way down caused by the other two EMA’s: the 100 day and 260 day EMA.  Until we’re not below or above all these three EMA’s, we need to be cautious, as we have no clear trend.

Gauging the hourly trend (short-term)

EURUSD hourly chart - trend

Above is a 1 hour chart of EURUSD where I plotted a 24 hour EMA. On the left side of the chart, we see a ranging period, where the angle of the EMA slopes is not very steep. Basically, price is making short runs above or below the EMA over and over again. Those are sideway trends. After that, price makes a steep bull run above the 24 hour EMA, providing us a good opportunity for us to buy EUROs all day long on the 25th november . After that, it tests the EMA, but after stalling for a few hours it falls below the EMA again, making for a good opportunity to sell that day (26th november).

As I said, I am a fan of the 1 minute chart, so I actually plot a 1440 minute EMA on the 1 minute chart (24 hours = 1440 minutes) and monitor that for bounces or breaks. It keeps me from getting into bad positions and helps me catch some good trends right at their birth.

The cherry on top of the pie

There is one more little trick I have in my sleeve for gauging the trend of the current trading day. It’s pretty simple, but it seems that many people ignore it. When I open up my platform, I look at the opening price of the current daily bar (price at 00:00 on your chart). If the current price is above that opening price, my bias is bullish. If it is below, my bias is bearish. Of course, I also take into account the EMA’s when making a complete trend analysis for the day.

Cheers!