In this article, I will teach you the basics of market trend analysis.
We will discuss Long Term, Mid Term and Short Term trends.
I will show you how to identify and apply them properly.
Please, note that we will execute the trend analysis strictly on a daily time frame.
For the trend identification, we will rely on classics price action analysis rules.
We will say that the trend is bullish if the price forms at least 2 consequent bullish impulses with a retracement leg between them, so that the price would set at least 2 higher highs and a higher low between them.
We will say that the trend is bearish if the price forms at least 2 consequent bearish impulses with a retracement leg between them, so that the price would set at least 2 lower lows and a lower high between them.
If none of these conditions are met, we will say that the market is consolidating.
Long Term Trend
Long term trend is based on the analysis of a price action over 1 year.
To identify a long-term trend, start by analyzing the price action over a period of one year from the current trading day.
Analyze highs and lows.
According to the rules, the long term trend on USDCAD is consolidation.
Mid-Term Trend
Mid-term trend is based on the analysis of a price action over the last 5 months.
To identify a mid-term trend, start by analyzing the price action over a period of 5 months from the current trading day.
Analyze highs and lows.
According to our rules, the mid term trend on the pair is bearish.
Short Term Trend
Short term trend is based on the analysis of a price action over the last 2 months.
To identify a short-term trend, start by analyzing the price action over a period of 2 months from the current trading day.
Analyze highs and lows.
According to our rules, the short term trend on the pair is bearish.
According to our trend analysis,
- long term trend is a consolidation,
- mid-term trend is bearish,
- short term trend is bearish.
Combining these 3 trends, we can derive that the pair is trading
in a huge range. After the price reached a resistance of the range, the price started to trade both in a short term and midterm bearish trends.
We can anticipate a bearish continuation till the price reaches a support of a long term range.
That is how you execute a trend analysis with price action.
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