PETIT TRENDS

PETIT TRENDS
As you are already aware, the markets can only move either up, down or
sideways. On a larger scale (say, as seen on a 5 minute chart or by simply
zooming out on your 1 minute chart) you might see that the market has been
trending (making a series of higher/lower highs and higher/lower lows) for a
while, or that the market has been moving sideways (just bouncing up & down
within a common range).
Remember how I stated in “Forex Surfing” that “what happens in the
macrocosm happens in the microcosm & vice versa”. Thus what happens in
your one-minute charts are the same things that happen on your 5 minute
charts, your hourly charts, your daily charts, weekly charts, even your
monthly charts!
So what am I getting at here??? Well trends happen on your one-minute
charts that might only last 10 to 30 minutes. One larger charts this would only
appear to be a small & insignificant wave or market fluctuations but for a
scalper this is a very serious trend! It doesn’t matter if it is only 10 pips, it is
still a trend.
What may only be a slight blip or a slight move on a larger chart view
can be a complete “trend” in the eyes of a scalper.
Ok, so it’s a trend, but there is more. It also adheres to the general principles
to a trend.
In “Forex Surfing” I showed you the above diagram explaining that there are
trends within trends within trends. Well if you look at the bouncing green line
you notice that it goes up, then it goes back down along the blue shorter
uptrend line. Guess what, that tiny up and back down movement which might
have seemed relatively insignificant from the perspective of a larger chart
represents a complete uptrend and a complete down trend!
Click Here to watch a Flash video of a Fractal
Scientists and mathematicians like to play with “fractals”. They make pretty
pictures. The point of fractals is that as you keep zooming in you keep seeing
the same thing over and over again. The microcosm is a reflection of the
macrocosm. In much the same way, the behavior of your one-minute charts
mimics the behavior of your monthly-charts. This also means that many of
the “rules” regarding trendlines is also true, such as how to gage a trendline
break.

Look at the chart above. Notice how it appears that it could be a chart from
some larger time frame? Well guess what… this is a one-minute chart and
each of the price increments shown on the right are just 5 pips. FYI, after
taking the above chart snapshot it continued trending up, and furthermore this
is of EUR/USD at around 9pm EST (when normally you wouldn’t be trading
because it is outside of the normal market overlap times – just to further
reinforce that scalping opportunities can happen 24 hours a day). Here is
another tidbit of interest – though the price moved on this chart only about 20
since the consolidation you could have walked away with over 30 pips on
what you see here alone. Within an hour after taking this picture the market
continued moving up 10 pips higher than the high shown for an extra easy 20
pips. From 6:30pm to 9:30pm EST (3 hours) you could have walked away
with an easy 50 pips without any losses. I’m still sitting here watching this, so
who knows what will happen later, but I don’t feel like retaking the picture
(too lazy) but the above shows you enough to learn from. Unfortunately I
didn’t trade because I was busy writing about this for you, but I’ve learned to
not worry about missed trade opportunities because they happen over and over
and over and over and over again. I’ll catch something like this next time I’m
actively trading.
As an afterthought I now regret naming what I termed “Micro Trends” that in
my eBook “Forex Surfing” as these trends, which I am now discussing, are
even smaller (and more aptly named “Micro”). Oh well. So that we have a
convenient term to call these even smaller trends for our discussion purposes
I’ll call them “Petit Trends” (“petit” is the French word for “small”). So now
we have a convenient label to use.
Ok, now let’s continue further.
Earlier I mentioned that even on this small scale that generally the rules
applying to trends, such as adjusting (fanned) trend line, broken trends, and
trendline reversals, are true. Let us briefly recap some of these principles.
Broken Trendlines – It is pretty simple to recognize a broken
trendline. Simply draw a trendline within a petit trend and when it is broken
then you will often see a market reversal shortly following.
Notice that these petit trends are pretty simple. Of the 4 trends shown here
they are all pretty much simple trends without fans (except for the second
trend (down) I did add a single fan trendline.
Remember that for a scalper you want to ride your trend and then jump out of
the trade at the first sign of a reversal. You do this because you want to exit
the trade with the maximum profit possible. You then jump back into another
trade when the right set-ups appear.
It is important to keep in mind that when the market is trending you ONLY
trade in the direction of the prevailing trend. DON’T try to trade in both
directions. If the market is uptrending then you only trade the upward petit
trends and you usually (there are exceptions) ignore the petit down
trends. Only resume trading when you see that the market is resuming its
upward trend catching a nice petit uptrend. (Reverse everything I just said for
down trends) If the market is moving within a range such as a consolidation
or within a triangle then you may trade both the up petit trends and the down
petit trends (discussed further later in this eBook).
Fanned Trendlines – When drawing trendlines you connect the lowest low
(I’m obviously talking about an uptrend, just reverse everything I’m saying
for a down trend) to the next lowest low (which should of course be higher in
an uptrend). Often as a trend begins to pick up momentum the steepness of
the trend changes and you need to add more trend lines (steeper ones) to
follow the steepness of your trend as it gets steeper and steeper. By adding
multiple trend lines that follow the pregressively increasing steepness you get
multiple fanning lines, hence “Fanned Trendlines”. Below is an example of a
fanned trendline.
(FYI – this chart is the continuation of the previous chart that proves that it
did continue going up like I said)
Here is another petit trend and notice that I’ve added 3 fanned trendlines.
Now why use a “Fanned Trendline”? Simply put the name of the game for
scalping is to get out of the market AS SOON AS the market starts
reversing. You might say that “yeah but after the market does a brief reversal
it often resumes the larger trend. Wouldn’t it be better to stay in to continue
the ride as it continues the larger trend?” As a scalper you DO want to get
out when your petit trend ends for two reasons. (1) You want to get out with a
profit even if the profit is small. (2) When the reversal reverses again
(resuming the larger trend) you’ll want to get in again (discussed later) and so
you could double catch the pips going back in the direction of the trend
(resulting in more profits).
Thus a “Fanned Trendline” is there to signal you to possibly exit a trade at the
first sign of a potential reversal.
Trend Reversal Patterns – Generally speaking, when a trend breaks so does
your trade (you get out quick). I am mentioning the following because it is
sometime interesting, and sometimes useful for scalping purposes.
I mentioned before (repeatedly) “what happens in the big picture happens on
the small scale”. Well in my eBook “Forex Surfing” I taught you about
common reversal patterns such as “double-tops/bottoms”, “King’s Crown”,
“1-2-3”, “Head & Shoulders”, “Loosing Steam” and other such
reversals. Well they can and do happen on the “petit” scale too.
See the “Head & Shoulders”?
These are useful because they can show you when a market is retracing or
turning around, but most importantly because it can also act as a signal for
you to consider entering a trade (if it is a reversal of a brief reversal that is
now resuming the overall trend, or if in a trading range to switch directions).
It is important to keep in mind that ALL trends end (from small trends to the
largest ones). It is important to watch for the end of the “prevalent” trend so
that you can be quick to change direction of which way you go for the petit
trends.