You have probably heard about the concept of ‘change in trend’ or studied the situation for yourself on the chart. There are many methods to assess the trend.
Some methods are based on the analysis of certain sequences of bottoms and tops. Today we shall take a closer look at the method Victora Sperandeo. The method is based on trendlines and the ”as easy as 1 – 2 – 3”.
The definition of the trend and its types is the subject of a comprehensive article. For simplicity, we assume that the trend is the dominant direction of price movement at a given point in time.
In the case of an upward trend, prices can consistently move up. The movement is stopped by the downs, which does not exceed the previous low level. The situation is the reverse in a downtrend, where prices are falling, and the correction does not exceed the previous highs.
Add a trendline
As I mentioned in the beginning is Victora Sperandeo, based on the trend lines. The method must be set up correctly. There are some important issues related to this question, which I shall try to describe later.
First, we must define the time period that interests us. The following example uses a long-term trend for the currency pair GBPAUD, but this method works well for short movements.
A rising trend
When we have identified the higher peaks and higher bottoms, we can draw a line (that does not cut the graph between the bottoms) between these if we have at least three tops or bottoms. Let us look at the chart:
A falling trend
Let us look at how to determine the trend line if the trend is falling. This time we have chosen to follow the chart H1 (a short-term trend).
We draw a straight line from the highest peak to the lowest peak. Remember: the trend line may not cut the graph between the peaks.
1 – 2 – 3
Now we can go ahead and talk about a suitable method that will help us to determine the twists and turns in the trend. Vica-the method consists of three conditions / changes in operations that will be described below and as shown in the illustrative graphs, as we have seen in the past.
1. Trend reversal
The first condition is to break the trend line. See the chart below.
2. No new highs (in an ascending trend) or the bottoms (in a descending trend).
A rising trend: when the trend line is broken we shall have our strategy ready – correction pops up, the revamped peak is located at a lower level than in the past, and then drops the price quickly.
The chart below shows a correction, but its reach may not exceed the maximum peak level. The revamped top test the trendline, which should now have been converted to act as a resistance.
Let us now go over to a downward trend. In this case, the trend line is broken, but the price is below the. The higher bottom was formed and the trend line is broken in the next movement.
The next bottom is above the trend line, which does not exceed the lowest gap.
If these two conditions are met, the opinion of Victor Sperandeo that the trend has changed. If you meet the third condition, then one can say that a trend change actually occurred.
3. There past the gap (in a rising trend) is broken, and the previous top (in a rising trend) is broken.
A rising trend: the Graph below (GBPAUD) show that the previous gapnivå is now broken (see paragraph 3) and that the trend has changed, according to Victora Sperandeo.
A falling trend: the Graph below (AUDNZD) shows what a reverse situation can give for the outcome. The previous top is now broken and we see that the trend has changed (3).
Give you the only thing you need to – practice. But before you get to it, suggest Sperandeo to use horizontal lines. Why?
An upward trend: We draw a horizontal line through the revamped top. The second line must pass through the gap. Below is an example:
After breaking the trend line, the price can rise to the horizontal line that is determined at the previous top. However, it should not rise further, then it may led to that the trend continues. The decline should cross the line, which is available at a lower gapnivå. This means a change in trend – all the conditions are now met.
Chart AUDNZD, below, shows an opposite situation in a falling trend. One of the horizontal lines passes through the lowest set the gap and the other line through the highest peak level.
The diagram shows horizontal lines, the key levels that are immediately eye-catching, that you need to consider when it comes to a possible change in trend.