Friends who have been following my teachings for a while are aware that a complete trading system must consist of four components:

Trend determination, entry points, stop-loss and take-profit, and money management.

Determining the direction is the first step in a trading system and is also a crucial step because if it is not done well, all subsequent operations are meaningless.

Some time ago, I wrote several articles about entry and exit points, and everyone found them very helpful, so today I will continue to explain eight methods for determining the direction of trends, which you can combine with previous articles for reference.

1. Basic issues in determining the direction

First: Determine the time frame before determining the direction.

There are nine time frames on the charts of the MT4 trading software: M1, M5, M15, M30, H1, H4, D1, W1, MN.

The trend of a larger time frame is composed of smaller time frames. For example, a brief pullback in a 4-hour bullish trend will form a very standard and clear bearish trend on a 15-minute chart.

A 4-hour trader says it's a bull market now, and a 15-minute trader says it's a bear market now, and they are both correct. If you don't determine the time frame, discussing whether it's bullish or bearish is actually meaningless.

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Therefore, before trading, you should first determine which time frame you are trading, and then determine the direction of that time frame.When discussing direction with others, it must be the same: Is the 4-hour level currently bullish or bearish? Or I believe the 15-minute chart is currently bearish, which seems more professional ^_^.

Secondly: What if the direction is not judged correctly?

There is no trend on the chart's candlestick lines, and the candlestick lines will not tell you whether it is bullish or bearish now. If you want to define your own trend, you must have your own criteria for confirming the trend.

This criterion can be technical indicators or your subjective judgment; whatever it is, having standards is essential.

For example, traders who use moving averages can use the upward turning of the moving average as the standard for confirming a bullish position. The trend after the moving average turns upward is judged to be bullish.

Similarly, traders who use MACD can use the MACD's top and bottom divergence as the standard for confirming the trend. The trend after the top divergence is judged to be a bearish trend, and so on.

At this point, some people may feel puzzled: What if the moving average turns upward, but the market does not rise but falls instead?

We must understand a principle in trading: all trading actions are probabilistic events, and using technical indicators to confirm trends is also probabilistic and cannot be correct every time.

After confirming the trend, we enter the order, and if the market moves as expected, we take profit; if the market does not move as expected, we cut our losses. It is normal to have both wins and losses. As long as we control a reasonable profit-loss ratio and success rate, we can profit from the final trading results.

Do not be too entangled in this point; it is not necessary.2. Eight Methods for Determining Direction

In practical applications, technical indicators are used to determine the direction, which are mainly divided into three major categories: those based on indicators, those based on drawing lines, and those based on patterns.

Next, I will explain the methods for determining direction according to these three categories.

First, let's discuss the methods for determining direction using indicator-based indicators.

These types of indicators are automatically generated on trading software, and they can be used to determine direction after being added directly to the software.

Method 1: Using Moving Average Indicators to Determine Direction

In practical use, there are two main ways to use moving averages to determine direction: one is the crossover of moving averages, and the other is the turning point of moving averages.

Crossover: On the chart, when a moving average with a smaller parameter moves downward through a moving average with a larger parameter, it is referred to as a "death cross." After the death cross is formed, the direction is considered bearish. When a moving average with a smaller parameter moves upward through a moving average with a larger parameter, it is referred to as a "golden cross," and after the golden cross is formed, the direction is considered bullish.

Turning Point: On the chart, when a moving average flattens and then turns downward, the direction is considered bearish. When a moving average flattens and then turns upward, the direction is considered bullish.

For the use of moving average turning points, in practice, for easier observation, multiple moving averages with similar parameters can also be used. When several moving averages turn at the same time, it can be used to determine the direction.Method 2: Using the RSI Indicator + MACD Indicator to Determine Direction

Both of these indicators fall under the category of overbought and oversold indicators, and they are also considered to be more oscillating types of indicators, with similar usage methods. Here is an explanation. In practical application, you can choose to use one of them.

RSI: On the candlestick chart, when the RSI line shows a divergence with the candlestick price at the top, it can be determined that the direction is bearish. When a divergence occurs at the bottom, it can be determined that the direction is bullish.

MACD: On the candlestick chart, when the price of the candlestick changes and shows a divergence with the MACD energy column at the top, it can be determined that the direction is bearish. When a divergence occurs at the bottom, it can be determined that the direction is bullish.

Note: The divergence judgment of direction using the RSI indicator + MACD indicator can be combined with other technical methods for determining direction for better results and more precision. I will also explain this in the following content.

Next, let's discuss the method of determining direction using line drawing.

These types of line-drawing indicators require traders to make subjective judgments and choices, finding positions on the chart and drawing lines onto it.

Method 3: Using Trend Lines + Channel Lines to Determine Direction.

A trend line is an indicator that follows the trend, connecting the high and low points of the trend's retests, which allows you to draw a trend line on the chart.

A channel line is a variation of the trend line. After drawing a trend line on one side, you can form a channel line by moving the trend line horizontally to the other side of the candlestick chart.In practical application, when the price breaks through the trendline or channel line, it is used to determine the reversal of direction. If the candlestick breaks through the descending trendline or channel line, the direction is judged to be bullish. If the candlestick breaks through the ascending trendline or channel line, the direction is judged to be bearish.

Note: On the left side of the chart, the trendline is broken, and at the same time, the MACD forms a top divergence. On the right side of the chart, the candlestick breaks through the channel line, and the RSI indicator is also in a state of bottom divergence. In practical application, they can be combined and used in resonance.

The 4th method: Use support and resistance levels to draw lines + the shape of the candlestick to judge the direction.

Support and resistance levels have the function of reversing the market trend. After the market tests the support and resistance positions, the trend reversal can be judged.

When the market tests the upper resistance level, the direction is judged to be bearish. When the market tests the lower support level, the market is judged to be bullish.

In practical application, draw support and resistance lines at the support and resistance positions, wait for the market to test them, and then confirm by combining with the reversal candlestick shapes.

After the price tests the previous resistance level upwards and forms a reversal candlestick shape, the direction can be judged to be bearish. Subsequently, after the market goes through a period of consolidation, it falls sharply and significantly.

Note: At the same time when the price tests the resistance upwards and forms a reversal pattern, the MACD is also in a structure of top divergence, forming resonance.

The 5th method: Use the breakage of support and resistance to judge the direction.

This is a trend-following trading logic. After the price breaks through the support or resistance level, it will indeed continue to move in the previous direction, and at this time, the direction can be judged.The price has broken through the resistance above, and the market is judged to be bullish; the price has broken through the support below, and the market is judged to be bearish. Note: In practice, when confirming the direction by breaking through support and resistance, try to use the closing price to confirm the validity of the break, which will lead to more stable trading.

Lastly, let's talk about using pattern-based methods to determine the direction.

After a breakout of the K-line consolidation pattern, the direction will be established, so we can use the consolidation patterns of K-lines as a standard for determining the direction.

Method 6: Use head and shoulders patterns and double tops and bottoms to determine the direction.

These two types are patterns that confirm trend reversals, divided into top and bottom patterns.

If the market breaks through the consolidation pattern at the top, the direction is judged to be bearish. If the market breaks through the consolidation pattern at the bottom, the direction is judged to be bullish.

Note the left side: Before the double bottom breaks through, the MACD energy column and the K-line are in a state of divergence at the bottom. The patterns of top and bottom consolidation breaks can be used in conjunction with MACD or RSI divergence at tops and bottoms.

Method 7: Use continuation patterns to determine the direction.

Continuation patterns belong to the trend-following trading logic. After the price breaks through the neckline of the continuation pattern, it continues the previous trend, and at this point, the direction can be determined.Break through the continuation pattern upwards, and determine the direction as bullish; break through the continuation pattern downwards, and determine the direction as bearish.

After the market continues to decline, it forms an upward-sloping flag pattern again. When the support line at the bottom of the consolidation pattern breaks, the direction is determined to be a continuation of the bearish trend.

The most common and easily tradable continuation patterns include: rectangle consolidation, triangle consolidation, and flag consolidation.

The 8th method: Use the pattern of false breakouts to determine the direction.

Although false breakouts are not common, they are very effective special patterns for determining the direction.

After a false breakout that lures both buyers and sellers, the market reverses, usually with a significant space and a faster pace, which is an excellent trading opportunity.

A false breakout after luring buyers is determined as a bearish direction, and a false breakout after luring sellers is determined as a bullish direction.

Note: Key horizontal support and resistance levels, important moving average support and resistance, and false breakouts at the end of a one-sided trend are all patterns that can be used for false breakout trading.

3. Precautions for determining the direction

(1) Do not engage in discussions.When you determine the direction, choosing different time periods or different indicators may lead to completely different results. Moreover, the accuracy of each direction determination is distributed probabilistically, and being right or wrong once or twice has no significant impact.

Many people, in some communication groups, see that a person's direction judgment has always been correct, and they become restless, even doubting whether they are wrong. Do not be curious about how others determine the direction; instead, focus your time and energy on improving your own standards for judging the direction. Do not let others cause anxiety or self-doubt, which can affect your judgment and lead to trading losses.

(2) You can use 2-3 methods of confirming the trend to resonate and determine the direction. In the example above, the breakdown of the trend line and the breakdown of the consolidation pattern can both resonate with the MACD indicator to determine the direction. Resonating with 2-3 methods to confirm the direction is very feasible. Everyone can choose their suitable methods to combine and conduct backtesting before actual combat.

The above is the specific method for determining the direction. Everyone can combine it with the methods in my previous articles on entry and exit to form a basic trading system.