In today forex faq, we have a great question from one of our fellow traders.
Below is the question:
How do you know you when the trend has still got some more to go, or phrasing it differently, how do you know you are not too late?
First of all, I must say that you have asked a very good question here. In fact, a trend is divided into 3 phase, beginning, momentum, fading.
For the beginning phase, it is very hard for any trader to know when a trend is going to begin. In fact, most of the time, when a trend is being confirmed, it is already in the momentum phase.
Therefore as a trader, we are always trading the momentum phase of a trend. As for how to tell whether the trend has came to an end. You can make use of the following few signals.
1) Reversal candlestick Patterns – You should keep a lookout for the formation of head and shoulder patterns or double top/bottom as these are strong reversal candlestick patterns.
Whenever you see the formation of these patterns and then the price manages to break the neckline, it will most probably marks the end of a trend.
You can read more about the candlestick patterns by clicking on the links below
Click Here For More Candlestick Patterns
2) 200 EMA – You can also make use of the 200 EMA to tell the end of a trend. When you see that the 200 EMA is sloping with good gradient, it is a sign that you are still in a strong trend.
When the 200 EMA starts to flatten, it is marking the exhaustion of a trend and you will find that the price will most probably starts to reverse.
3) Modified MACD – This is a section that is written for those who has bought my forex Streeet Uni course. When you see the 2 modified lines crossing below the Zero line when you are in an uptrend, this is definitely telling you that the trend has ended.
Similarly when the 2 modified lines crosses above the zero line when you are in a downtrend, it is a sign that the trend is going to reverse and turns up.
The above are how I check whether the trend is exhausted or not before I enter any trend trading trade. If you have anything to share regarding this question, please feel free to give your comments below.