Interaction of trends

It is interesting to study trends and how they interact because the price level of any security is influenced simultaneously by different trends.

Hence, why we need to note some application of trend classifications as it applies to trend interactions.

1. When we see any specific price pattern, our first question should be: Which type of trend is being reversed? If it is a short-term trend that is being reversed, then we would not be expecting much price movement when compared to an intermediate or primary trend being reversed.

2. Since intermediate and primary trends dominate price action, traders who deal with short-term trends should pay attention to these trends. They can help them in making good trading decisions.

3. When a trade is positioned in a countercyclical position to the main trend, trading losses usually happen. I do not say that trading with countercyclical positions to the main trend do not succeed, but they have a higher probability of resulting in failures. I trade countercyclical positions sometimes, but I am careful. I usually want to see the patterns having high volatility or being well pronounced. Below is an EURGBP chart showing a two bar reversal that did not move much because it was countercyclical to the main trend which was a downtrend.