The trend is your friend till it ends. But the problem is when does it end?
Many times I thought an uptrend is over only to see price break new highs shortly.
That’s when I realize that no one can predict when a trend will end. However it is possible to look for signs of when a trend may be ending.
And some of these signs you should pay attention to are
Break of trendline
Trendline are drawn by connecting swing points on a chart and projecting it into the future.
It can be used to indicate the overall trend of the market or to acts as area of Support & Resistance.
When using trendline I will pay attention to the slope of it. Why?
Because you are constantly adjusting it to fit the market. As the trend progresses, you tend to find your trendline being flatter due to the readjustment of it.
Eventually you find yourself adjusting to a point whereby the trendline is close to being flat, you’d know that the trend is probably losing it’s strength.
Price broke the trendline 3 times, sign of weakness?
Break of moving averages
Moving average(MA) is similar to trendline in the sense that it can also be used to indicate the overall trend of the market, and acts as Support & Resistance. But calculated based on historical prices
The MA I use are the 20 & 50 EMA. When using them, I will watch if price is respecting it or simply slicing through.
If price is respecting it, I will pay attention when it eventually breaks through the MA.
Because if price does break through, it tells me that the dominant trend could be losing strength, and the trend could possibly stall or reverse.
Break of moving averages
New structure high and low
Structure is one of the basic elements of trading. In an uptrend, price will form higher highs and lows. Likewise in a downtrend, price will form lower highs and lows.
When a trend is stalling, I will pay close attention to the recent high and low. Why?
Because in an uptrend we have higher highs and lows. If price stops making higher highs and instead makes a lower low, then it is a tell tale sign that the trend could be wavering.
E.g. A downtrend consist of lower highs and lows. But when price starts to make higher highs and lows, it is telling you that the dominant force is losing it’s strength.
Change of structure
There is no way to predict when a trend will end. I wish I could.
However there are signs given by the market to signal that a trend may be ending.
Some of these signs could be break of trendline, break of moving averages or break of structure.
One thing to note that all 3 signs could point to a change in trend, and still the market continues trending.
But that’s trading for you, we are dealing with probabilities never certainties.
So, how else can you tell a trend is ending?