Identifying the change in the trend

I guess, each more or less experienced trader has come across such phrases as "Trend is your friend", etc. This is one of the oldest traders' sayings and can be thought of as wise. Trend, in essence, is a strong one-direction movement, and many traders consider that there is a chance to receive profit in trading by the trend.

However, to make a profit by the trend, you do not only need to know correct entry points but also guess about the points where the trend can end. Knowing the point where the trend possible ends, you can make a maximum profit on every open trade and detect trend reversal points from which you can enter a new trend.

Signs of trend reversal

So, the first sign of the trend coming to an end, will be a breakaway of the trendline. When the price breaks through the current trendline, do not make preliminary conclusions and reverse your position. To make sure that your trend is over, wait for the second breakaway. Two breakaways of the trendline is a serious reason for the end of the trend.

How to find trend reversal points
How to find trend reversal points

The second sign of the end of the trend will be a breakaway of the last local high (for a bearish trend) or local low (for a bullish trend). In other words, the second breakaway point must be above the base point of the previous wave (for the bullish market) or below it (for the bearish market). I mean, in this case we act out of the notion of the trend. As we all know, trend is a market movement characterized by subsequent growth of local highs and local lows for a bullish or bearish trend, respectively.

Hence, when we see that the wind changes, this is a signal for a trend reversal.

To find the point, you need to break the trend down into waves or detect momentum and correctional price movements. When the price breaks through the beginning of the last momentum, this might mean the end of the trend.

How to find trend reversal points

Just based on these two principles, one can invent a good and profitable strategy.

By Dmitriy Gurkovskiy, Chief Analyst at RoboForex