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Traders: How to Know When the Trend Has Changed

Trader's Classroom shows you two simple tools to help identify when a significant top or bottom has occurred

by Nico Isaac
Updated: November 15, 2017

Dear traders, if a trend change occurs in the markets you follow, and you’re not there to catch it, did it really change?

Unfortunately, this isn’t a metaphysical quandary like the whole tree-falling-in-a-forest dilemma. There’s only one answer to this question; namely, yes! It really changed and yes, you really weren’t there to seize a major trading opportunity – or to avoid a risk.

The fact is, knowing when a market’s trend has changed is the number one challenge facing traders. Fortunately, our Trader’s Classroom instructor Jeffrey Kennedy has spent the last 20-plus years of his life building a tried-and-true arsenal of objective tools that help you identify moments when prices have put in a significant top or bottom.

In his November 9 Trader’s Classroom episode, Jeffrey introduces several of these tools, the first of which he calls “waves of equal weight in the opposing direction.” It’s one of the most basic, yet beneficial techniques a trader can learn. And, you can hear Jeffrey explain exactly how it works in an exclusive clip from his November 9 Trader’s Classroom video below.

Note: You will be prompted to pause the video at minute 1:44

Press play:

 

Several months ago, in his July 18 Trader’s Classroom webisode, Jeffrey used the waves-of-equal-weight technique to identify a change of trend in a specific stock, Ulta Salon Cosmetics (ULTA). He showed a chart of the market, which matched the necessary criteria and said:

“If we look at ULTA, you’ll notice that a transition has occurred in this issue in recent weeks. Prior to the peak that we saw in June, the trend was to the upside. Recently, now the trend is to the downside.”

Ulta Chart 1

The next chart shows how prices continued to fall precipitously from there, confirming the birth of the downtrend:

Ulta Chart 2

The value of that one simple tool is apparent. But as Jeffrey always says, traders “can’t rely on just one tool alone.” In the next part of the video above, Jeffrey introduces his second favorite technique for identifying trend changes: key and critical price levels.

Here, he revisits ULTA to show how this tool acted as ancillary confirmation of a significant top back in July, when prices penetrated critical support to confirm “a new downtrend was underway.”

Go ahead and un-pause the video from earlier to hear Jeffrey explain the technique in real time. We’ll be waiting for you right here!

Now that you’ve seen how effective these two simple tools can be for identifying major trend changes, it begs the question: what else does Jeffrey have in his trading arsenal?

Well, in the November 9 Trader’s Classroom lesson, Jeffrey unveils the top techniques in his toolbox, and how they helped signal tops and bottoms in the real-world price charts of Amazon, YY, Nvidia Corp., the DJIA, the largest ETF devoted to financial services, and more.

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In the last lesson, instructor Jeffrey Kennedy shows you how to apply these techniques to live charts of some of today's most popular stocks, like Facebook, Amazon and Netflix.