To gauge the strength of a trend using price action alone, I look at the size of the swings. If the last upswing is greater than the previous upswing then the uptrend is healthy and momentum is increasing. If you were using a momentum oscillator, this would show up as the oscillator making new highs. Keep buying pullbacks! One exception is not to buy pullbacks after a buying climax! If price makes a new high, but the last upswing is shorter than the previous upswing, then the trend is losing steam and momentum is decreasing. However, this does not indicate that the trend is reversing. If you were using a momentum oscillator, this would show up as a sell divergence. While in an uptrend, I also look for the trend getting old by looking for 3 pushes up. Basically, I do not buy the pullback after the 3rd push up, because I would expect a larger retracement or reversal. As long as the uptrend is intact, you have to continue looking to get long. Reverse the logic for downtrends. These concepts were first introduced by Wyckoff. I also like Linda Raschke's methodology who uses Wyckoff principles as well as others.
Hi bvam1, Thanks for the clarification. This is easy to answer. First...decide what type of trade this is going to be prior to entry. If your looking at this via a long term analysis...seems to me your talking about a swing trade for a minimum of a few weeks or months. With that said...put your stop/loss protection in and don't worry about the short term intraday ups and downs. Think about it...why put on a swing trade like that with your stop in place if your going to be glued to your monitor and watching the trade like a day trader (looking for intraday reversal patterns)??? Further, if your the type that can't separate a swing trade from day trade monitoring... Learn to hedge against your swing trade position via having a second position in either a similar like trading instrument (similar like price action) with the same broker or in the same trading instrument via a second broker as day trades. Once again...if your that worry about intraday ups and downs...either hedge against your swing trade via day trading a second position or don't swing trade (no more long-term analysis). Example...pretend your bullish on NYMEX Light Crude Oil CL and open a swing position while day trading NYMEX e-miNY Oil QM. Place your stop/loss protection in on CL and leave it alone while day trading its e-miNY. Further, take a closer look at your hypothetical example above... You begin your analysis or trade via saying... long-term trend outlook points upward indicating an up trend. Then you end your example via saying... it is likely that I will make short-term profit rather than a loss. Seems obvious to me you should have two different positions because its extremely difficult to manage a swing trade position via trying to analyze every intraday reversal moves. Thus, your making it harder than what's needed. Mark (a.k.a. NihabaAshi Japanese Candlestick term
A simpler approach would be to use a moving average that has acted as an area of strength in the past. I remember the es using the 65 on the weekly - provided a reasonable support and subsequent rally from there.
How about identifying an established intermediate trend (daily) using trendlines. Wait for a hard bounce off the daily (confirmation), shift down to a intraday fractal of your choice (5min, 10min etc), and hop on in the direction of the intraday trend. At market inflection points (intermediate and or long term) jumping on the intraday confirmation move can yield some nice gains. Give it a shot.
============ Bvam1/all; Probably lots of people shoot it that way; except some use trend lines that automatically move[also called moving averages] Also agree start with longer time frame first; got the exact idea which is in more details, in,Market Makers Edge ,by Joshua Lukeman Interesting comparing it to shooting; an olympic skeet shooter champ may hit 98-99% on mechanical skeet.[Not necessary for swing trading, but fun to record] Live gamebirds most average far less, like 20-50 +% hits; can still eat very well with 50%, just be prepared to shoot 2 or 3 times more or less per gamebird Perhaps daily charts more useful for swing/position trade.