In this article, we will discuss how to execute advanced market trend analysis with Smart Money Concept trading SMC.
I will teach you how to identify long-term, mid-term and minor trend and how to apply trend analysis in making predictions and trading.
SMC Trend Analysis Basics
First, let me briefly remind you the basic rules of a trend analysis in SMC trading.
We say that the market is bullish if there are at least 2 bullish impulses with 2 higher highs and a retracement leg between them with a higher low.
The market is bearish if there are at least 2 bearish impulses with 2 lower lows and a retracement leg between them with a lower high.
If the conditions for a bullish or a bearish trend are not met, we say that the market is consolidating.
SMC Trend Analysis Events
Bullish violation of the last higher high in a bullish trend is called a Break of Structure BoS.
Bearish violation of the last higher low in a bullish trend is called a Change of Character CHoCH.
Bearish violation of the last lower low in a bearish trend is called a Break of Structure BoS.
Bullish violation of the last lower high in a bearish trend is called a Change of Character CHoCH.
BoS signifies a trend continuation.
CHoCH signifies a trend violation. SMC Trend Analysis in Practice
In order to apply these rules on a price chart, we perceive the market movements as the set of impulse and retracement legs.
However, with such a method of analysis a big question arises: what is exactly is the impulse leg, how strong and long it should be. Which price fluctuations can be a part of the impulse and which should be excluded? Impulse Leg in SMC
Look at the example above. A price action on AUDCAD can be perceived as one single bullish impulse or a combination of 3 bullish impulses and retracements or a combination of multiple impulses and retracements.
Which way of analysis is correct?
The fact is that the price action analysis on each chart is correct. The only difference between them is the perspective.
The Perspective
From a long-term perspective, the entire price movement on the chart is a one single impulse.
From a mid-term perspective, it is the market that is trading in a bullish trend in 3 bullish impulses.
From a short-term perspective, it is the market that is trading in a bullish trend and started to consolidate and trade in sideways for some time, resuming the growth then.
With advanced SMC trend analysis, you should learn to perceive a price chart not only as a combination of impulse and retracement legs, but also as a combination of long-term, mid-term and short-term trends and movements.
Depending on your trading style, such a reasoning and view on the market can be applied on any time frame.
Examples
Look at AUDJPY pair on an hourly time frame.
From a long-term perspective, the pair is trading in a bearish trend.
Studying in details the last bullish impulse, we can perceive it as a minor bullish trend with its confirmed violation after a Change of Character.
Let's discuss another example.
EURNZD is trading in a clear long-term bullish trend on a daily.
Zooming in the chart, we can also analyze the last bullish impulse in a long-term bullish trend as a mid-term bullish trend.
At the same time, if we analyze the recent minor movements, we can spot a confirmed minor bearish trade on the pair. How to Apply Advanced Trend Analysis in SMC?
Why do we need such an in-depth market trend analysis?
Always remember that a global trend is always born from a minor trend. Minor trend analysis will help you to identify local reversal or trend following signals much earlier.
Returning to our example, the fact that EURNZD started to trade in a minor bearish trend, being globally bullish, can be an important warning sign for us.
You can see that after some time the pair started to fall rapidly.
A minor bearish trend continued, a mid-term bullish trend was violated and a correction started in a global bullish trend.
Your ability to correctly analyze different market perspectives is essential for making accurate predictions.
The trend analysis rules and events that we discussed are more than enough for successful trading any time frame and any market.
Study trend analysis, learn to identify global, mid-term and minor trend and good luck in your trading.
