Yes, “the trend is your friend,” and I want to trade in the direction of the trend. How? When to get into the trend? As a basic introductory level, entries to join the trend are ideal in the pullback phase.
All trends have two an extreme point A and B. The A to B move is typically smooth and continuous. The direction of the move defines the trend bias – trending up or trending down. From point B price will reverse and begin moving back towards point A price level. The move from B, where it stops is labelled point C. If point C exceeds point A, it is no longer a pullback and likely the beginning of a new trend – this will be another blog post. When the counter move stops before the anchor point A and resumes in the AB direction, we can say the trend has resumed. From point C, for the trend to continue it must go past point B.
When price gets past point B, wherever it stops, before another pullback, that becomes point D. AB is the direction of the trend and BC is the pullback with in the trend. CD is the continuation of the trend. AB is often referred to as a impulse move. CD typically is an impulse move, AB is often smoother than BC. The whole flow AB, BC and CD is a full trend cycle and if the trend is strong, the cycle will repeat.
In every market and every time frame, price has a direction bias, we can call that the trend direction or trend bias. For every directional bias there is a counter move, we can call that the pullback. In follow up posts, I will discuss measuring pullbacks and differentiating between minor and major pullbacks, qualifying and confirming point C, and when trends change direction.
Price Action Trading 