Identifying Trend Direction

The term "Trade with the trend" or " The Trend is your friend" is often used in the world of trading but many people struggle to identify trend direction. The reason that people struggle to identify trend direction is due to the fact that financial instruments don't move in a straight line and the trend may be different depending on which time frame you viewing price.

To identify a new trend I use dynamic support and resistance as well as trend lines bounces and in both cases we will need to know how to use swing highs and swing lows effectively to call the direction correctly. Swing high or low is when price is moving a certain direction and then pulls back or has a pause before resuming in the direction it was moving in. Below are examples of a swing high and swing low candle formation.

  

A swing high is formed when the high of a price is greater than a given number of highs positioned around it. 

A swing low is created when a low is lower than any  other point over a given time period.

Now that we are able to identify what a swing high and a swing low is we can now apply this to our charts in the following manner. In the below chart we can see how the swing highs and lows rejected or bounced off the EMA also know as the dynamic support and resistance.

In the below diagram a trend can be seen by drawing a line and joining the swing high and lows. In this example the swing lows where joined and now we can clearly identify the trend direction. A trend line is only a trend line if there are 2 or more touches. In the same diagram I left the EMA indicators on the chart so that you can see how the swing lows react almost the same way to the trend line drawn.
 
To draw trend lines I suggest you zoom out into the larger time frames and draw 1 or 2 obvious trend lines on each chart. Example lets say you are working on the 4H chart where a valid price action signal is present and you want to identify the trend. Start by zooming out to the weekly time frame drawing the most obvious trend lines on the chart then work you way on each time frame until you get to the 4H. These trend lines will indicate true valid key levels.

The one thing we will never know is when a new trend starts or finishes therefore we should wait for  market to confirm the new bias. In the case with trend lines if price breaks the trend line we can say that a new trend maybe forming, however a trend line needs 2 or more touches to confirm a new trend is in place. The same could be said about dynamic support and resistance.  In both these cases we can say that the second retracement are always important after a new trend.

Now that we have the tools or methods in identifying a trend, combing this with horizontal support & resistance levels as well as a valid price action signal we can confidently enter the market with a high probability trade.