I was reading about a little known trendline trick at swing-trade-stocks.com which states, "in an uptrend, if a higher high is made but fails to carry through, and then prices drop below the previous high, then the trend is apt to reverse."  Though this information may seem obvious, I still find it valuable.  I looked back at the 240 minute EUR/USD chart and noticed that more often than not, this is the case.  Why? 

"...the locals as well as the brokers who trade on their own account have a vested interest in driving prices slightly above or below these "resistance" or "support" points to force execution of the stop loss orders. This is called "taking out the stops." After the stops are executed, the market will readjust."

This information was provided by a trader (Trader Vic) who was featured in the popular "Market Wizards" books.  This leads me to how you can get free trading book content.  The above "trendline trick" is just one of three of Trader Vic's criteria for a trend change.  I wanted to find out the other two criteria.  I easily found it by searching for the book "Trader Vic" at Google's Book Search.  The entire book isn't provided but a lot of content from the book is.  This is the case for many more trading books.  I've said it before but sometimes a tidbit of information can go a long way and there is a lot more than a tidbit of information at http://books.google.com.   Search for Forex and you'll find a lot of books on the subject, just be sure to skip over the "Forex Made Easy" book by James Dicks.

What are the 3 criteria for trend change? (Provided by the book, "Trader Vic--Methods of a Wall Street Master")

1. break in the trend line
2. test of preceding high or low
3. breaking of a preceding minor rally high or minor sell-off low

Here is a graphic corresponding to the 3 criteria for trend change:

Read or add comments about this item.

No. 1 :

EURUSD Today is a new high, the last new high was Nov 9 at 1.29022 (yup, I shorted there today),

i.e. if .29022 holds the rally should continue else look for a trend change, (yearly high is 1.29793)

Chart:
[img]http://www.micahstone.com/images/images/22-nov-2006.jpg[/img]

Submitted by David Stone • 2006-11-22 17:00:30

No. 2 :

Think what you describe at the begining of this article is what kathy lien calls "the fader" in her book "day trading the currency market" . She also suggests expanding it with this filter. For long it would be like this:
1. look for 20 day high
2. look for the pair to reverse and make two day low.
3. buy the pair if it takes out 20 day high within three days of making the two-day low.
(low and declining adx would would also be good)

Your blog is great! keep up the good job!

Submitted by elias • 2006-11-26 15:57:46

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