How to identify the trend correctly to execute short-term trades with Price Action – Part 18

How to identify the trend correctly to execute short-term trades with Price Action – Part 18
How to identify the trend correctly to execute short-term trades with Price Action – Part 18

Before learning this article, everyone can read part 15 again – How to identify an intraday trend with Price Action. To continue the series, I share 2 more ways to determine the intraday trend with pure Price Action to make short trades during the day. Of course, each method will have its pros and cons. Depending on your preferences and personality, you can choose for yourself which way you like best.

Use longer trading timeframes to read trends with Price Action

Trends can be viewed as the big picture. It’s a higher, clearer view of the market like you’re standing on top of a mountain looking down. All market noises when viewed on large time frames are eliminated. So, a great way to identify trends for day trading is to look at the longer timeframes.

The chart below will show you how to use 2 charts. They include 5 minutes (above) and 1 hour (below) to find the intraday trend of the 5-minute chart.

Use 2 charts to observe the trend
Use 2 charts to observe the trend

The H1 candles are mostly green and the lower low is higher than the previous one. It is a sign of an intraday uptrend. Although there is some downside correction, the price makes a higher high to continue the previous trend steadily after that. Therefore, it can be confirmed that the rest of the day will be bullish or the price will retest the previous peak before continuing the preceding uptrend.

The method of applying the longer timeframes to determine the trend for the lower frames is used very successfully in the day trading strategy with RSI.

Next example

Use RSI in combination with 2 charts to determine the trend and entry point
Use RSI in combination with 2 charts to determine the trend and entry point

Above is a 5-minute EUR/USD chart and below is a 1-hour chart. The below chart showed a bearish candle making a lower low than the previous ones. Following it was a green candle that bounced back so we can deduce that:

Although the H1 chart appeared a bearish candle creating a lower low. But we couldn’t confirm that it was a downtrend because the price just approached the previous support zone.

RSI cut the 30 up from below and made a higher high while the price of the 5-minute chart fell. This is a suitable bullish divergence for a bullish order.

When the RSI crossed the 30 officially, we will place a bullish order when the current 1-hour candle closes and it must be a green candle after touching the support and bouncing.

On the chart, you can use 2 timeframes to analyze, find signals and enter orders. Let’s test 1 pair of 2 beautiful frames. They can be 5 minutes and 1 hour, in which 10hour frame to analyze the big trend, and 5-minute to find the entry point and timing (calculate the exact time to enter the order and place the stop loss). Besides, you can also apply it to the frames H4 – D1.

Identify trends with the trend line tool of Price Action

Trendlines are very useful to identify intraday trends for Day Traders. It shows us the trend as well as the strength, weakness, and momentum of that trend.

In addition, you will also know the earliest signal of a broken trend. That is when the price goes through the trend line you drew earlier after connecting the peaks or troughs to form.

Use trendlines to identify intraday trends
Use trendlines to identify intraday trends

In the picture above, you see the downtrend being broken when it was penetrated by the price. That means you could predict this price action and avoid losing with bearish orders after that.

What is the best way to trade and identify the trend with Price Action?

There is no best way to determine the trend. Each way has its pros and cons. That’s also why we need trading setups to determine when to enter and limit risk.

What is needed here is that you choose for yourself a favorite method to master. Try not to use it superficially and conclude that it has no effect.

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How to identify the trend correctly to execute short-term trades with Price Action – Part 18
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