Accurately determining the long-term trend is crucial for effective trade selection. When trading on MCX, it's important to use charts from international exchanges for our chosen commodities. This is because these commodities trade for extended hours (23 hours) on international exchanges, unlike MCX, which is closed for 9-10 hours during the night. This overnight closure on MCX can lead to disruptions such as overnight gaps and missing price action. Details of these charts from international exchanges are provided at the end of this post.
In addition to commodity charts, we also need to assess the long-term trends of US-based indices like the Dow and Nasdaq. The rationale for this will be discussed in the Trade Selection section.
How to Determine the Trend Technically - Several methods can be employed to determine the trend on a chart, existing or new:
Visual Inspection: Simply looking at the chart can tell if the price has direction, whether up or down. Even if the price is moving in a range, it can have direction from one end to the other provided the range is wide enough.
Trendlines and Moving Averages: Drawing a 45-degree trendline or using moving averages can help determine the trend based on whether the price action is above or below these indicators.
Break from a chart pattern: Breakout or breakdown from patterns like Head & Shoulders (H&S) and Reverse H&S, 1-2-3 Top/ 1-2-3 Bottom, Double Top/Double Bottom (DT/DB), or significant ranges can indicate a trend. The candle close should clearly demonstrate a breakout.
Reversal Patterns: A strong reversal pattern at or near one extreme of a wide trading range can indicate a trend. For instance, a big Bullish Engulfing pattern near the lower boundary of the range.
Pattern Failures and False Breaks: Pattern failures and false breakouts can initiate strong trends in the opposite direction owing to the "trap" effect. For example,
a breakdown from a larger Head & Shoulders pattern on a daily chart that fails to progress on the downside, goes sideways to form a small bullish pattern and then breaks out or
an intraday significant breakdown from a chart pattern or a strong support that reverses strongly the same day (forming a hammer with a big lower wick).
Trend Changes and Distinctions
Once the trend is established, any negative development on the charts may warrant marking the trend as neutral or the opposite. It's important to distinguish between weekly and daily trends. For example, a daily chart showing a strong Bullish Engulfing pattern after a steady downtrend may change the daily trend to bullish, while the weekly trend may remain bearish or become neutral. Avoid changing the weekly trend based on a single day's candle.
Sideways or Rangebound
Sideways movements within a range with no clear direction should be marked as neutral. Even after a breakout or breakdown, if the market fails to move in the intended direction by the third candle, mark the trend as neutral since the validity of the new trend becomes questionable.
EXAMPLES
Below are two chart examples for determining the daily and weekly trends for copper futures (HG1!) on Comex. The changes in trend have been demarcated by a vertical line with proper annotations explaining the change. This approach applies to other commodities and indices as well.
(Fig 1.1- Determination of Daily Trend on Copper Futures on Comex)
(Fig 1.2- Determination of Weekly Trend on Copper Futures on Comex)
The following examples are from Nifty Futures for determination of the daily and the weekly trend. As in the above examples, the changes in trend have been demarcated by a vertical line with proper annotations explaining the change.
(Fig 1.3- Determination of Daily Trend on Nifty Futures)
(Fig 1.4 - Determination of Weekly Trend on Nifty Futures)
As mentioned in the first paragraph, below is a table of International charts that we recommend to use for commodities and US indices. You can also follow any other exchange that has continuous trading for the listed commodities . What matters is the price action on the chart and not any particular exchange.
Commodity or Index | Type / Exchange | Symbol | Available on |
Copper | Commodity CFD | HG | |
Zinc | Commodity CFD | MZN | Investing.com |
Aluminium | Commodity CFD | MAL | Investing.com |
Silver | Commodity CFD / TVC | SILVER | TradingView |
Crude Oil | Commodity CFD / TVC | USOIL | TradingView |
Natural Gas | Commodity CFD / TVC | NATURALGAS | TradingView |
Dow Jones Indl Avg Index | Index CFD/ DJ | DJI | TradingView |
Nasdaq 100 Index | Index/ Nasdaq | NDX | TradingView |
(Table 1.1 - Trading Symbols of international charts)
This concludes Chapter 2 on the Technical Tools required to trade our System. Please click on "Next Post - Commodity" or "Next Post - Nifty" to move to the next section for and Introduction to Trade Mechanics for Commodities and Nifty respectively.
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