Market trends always elusive? Maybe you don't know if it's fluctuation or trend


Reflecting on our trading career, disappointments often come from chasing and selling during the day, getting in and out, and missing trends of various markets due to frequent trading.

Yet, looking across the market, how many people possess such an expansive mindset? Many are caught up in minor details, not concerned with the bigger picture, and short-sightedness is all too common. Even though they engage in futures trading, they live in the moment-to-moment changes.

Frequent day trading not only results in substantial transaction fees, but the greatest regret comes from missing the trend due to constantly entering and exiting the market. So, how can one avoid missing out on the trend as much as possible?

Laozi said, know the white, keep to the black. To not miss the trend, one must stand firm at the end of fluctuations. This essentially is the essence of breakthrough technology.

A breakthrough is a technical method to declare the end of fluctuations. Although it may not always be successful, the moment of breakthrough is a proclamation of success. Common techniques include triangular convergence breakthroughs or highs and lows breakthroughs.

However, when examining the vast majority of investors, what skills allow them to miss, bypass, or fail to capitalize on the trend almost entirely? And why is this?

At its core, the issue is that, although they understand breakthroughs, their understanding of trends is not detailed enough to accurately differentiate between fluctuations and trends. Let's discuss this in detail.

The Trend in the Forex Market

Dow classified trends into three categories: primary trends, secondary trends, and minor trends. He was most concerned with primary trends (or major trends), which usually last more than a year, sometimes even several years. He believed that most investors are inclined towards the market's main direction. Dow likened these three types of trends to the ocean, corresponding them to the tide, waves, and ripples, respectively.

Primary trends are like the tide, secondary trends (or medium-term trends) are the waves within the tide, and minor trends are the ripples on the waves. From the markings on a dike gauge, one can read the highest point of each wave and then determine whether the tide is rising or falling by sequentially comparing these peak heights. If the readings progressively increase, then the tide is still advancing towards the land. It is only when the crests of the waves gradually decrease that the observer can be certain the tide has begun to recede.

Secondary trends (or medium-term trends) represent adjustments within the primary trend, usually lasting three weeks to three months. These moderate-size adjustments often retract to a position between one-third and two-thirds of the entire previous trend's process. A common retracement is about fifty percent.

Minor trends (or short-term trends) typically last less than three weeks, representing shorter fluctuations within the medium trend.

In reality, in the market, from very short-term trends covering a few minutes or hours to extremely long-term trends lasting 50 to 100 years, countless trends of various sizes exist simultaneously and interact with each other at any given time.

The Oscillations in the Forex Market

Trends and oscillations are relative concepts, like yin and yang. The market revolves around these oscillations and trends, defining oscillation involves determining whether the price's actual valid change within a unit of time is less than or equal to the average volatility of that period.

Firstly, the discussion must not detach from the time period, whether it's daily, hourly, or monthly charts, or whether it's based on 30 days, 60 days, or 10 days. Everyone operates within a certain cycle, and without considering the time period, it's impossible to distinguish between oscillation and trend. For instance, a trend for a short-term trader on an hourly chart is merely noise on a daily chart for a day trader.

Oscillation can therefore be defined as: within a unit of time, if the price's actual effective change, divided by the average true range (ATR) of that period, produces a value very close to 1 or below 2, it's considered an oscillation. During this period, employing a trend-following system based on a 30-day cycle, for example, would not yield profits.

The Misconceptions of Trend and Oscillation

So, what misconception might trend traders fall into? The completion of a trend is unknowable beforehand, and during the process of forming a trend, each price point is uncertain. Thus, attempting to predict or discover a trend is impossible. Many people erroneously think: I am a trend trader; I only deal with trends; I must avoid oscillations.

This is unlikely, the simplest method to differentiate between trend and oscillation is to run a trend-following system. If you're losing money during this period, then it's an oscillation; if you're making money, then it's a trend.

Oscillation and trend coexist, within the same time frame, the end of a trend gives way to oscillation, and the end of oscillation leads to a new trend. On different time scales, within a large oscillation, there are small trends, and within a large trend, there are small oscillations.

Grasping Vibrant Trends

Traders should understand the movement of trends inside out. How a trend progresses, whether it consolidates or reverses sharply after ending, these are crucial aspects to comprehend.

Some might say, if I knew the trend, I would know how to trade, but the key issue is the lack of clarity. When trading, one should possess a childlike heart, meaning a clear mind, which prevents us from over-guessing and losing sight of the market's true nature. This is the principle of simplicity often advocated by the most successful investment giants.

Grasping the Timing of Entry Points, Assessing Commodity Trends

Going with the trend can sometimes lead to harm, so it's crucial to grasp the timing of entry points. In the process of market movement, the trend can be divided into the beginning, continuation, and end phases. However, in the transitional processes of these stages, it's essential to keenly understand and master their patterns.

In terms of commodities, it's important to follow the major trend during trading, understanding the current trend you're participating in, and avoiding involvement in commodities that are undergoing a trend shift and concurrently have shaky performance and have not shown positive signs in international markets.

Among all possible signals to engage in, not only should one conduct an analysis of the risk-to-reward ratio, but also analyze the stability of the trend. Compared to the volatility of the trend, its stability should be given more importance.

In trend trading, avoid participating in bounce-back and pull-back trades, especially when other commodities are trending. When trading a particular commodity, reference should be made to related commodities, especially when there is a severe divergence, to avoid risk.

If there are better fundamental reasons supporting market adjustments, after the fundamentals lose momentum, a return to the previous trend is highly possible. Always pay attention to adjustment signals that might indicate the potential end of a trend. If there's no reasonable fundamental analysis supporting a current trend adjustment, then it's primarily considered a technical adjustment, and measures should be taken according to technical analysis.

Lastly, the trading process should be kept simple and clear, applying one's own analysis principles directly, free from conjecture, with all decisions based solely on the market movements. In the face of a trend driven by long-term fundamental factors, one should first seek opportunities to trade with the trend, and even if there are slight technical contra-trend movements, they should be seen as adjustments to the current trend. Remember, whether in futures investment or elsewhere, contentment prevents disgrace, caution prevents peril, allowing for longevity.

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

The End


Contract for Difference (CFD)

Contract for Difference (CFD) refers to a financial derivative in which investors and counterparties engage in speculative or hedging transactions by exchanging the price difference of a commodity. Importantly, this occurs without the need to physically own or trade the underlying asset.

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