For most markets trade has been quite choppy and trendless since early February when the stock market suffered a steep decline of historic speed. Since then trend trades have been rare in most commodities. However, recently the dollar has risen steadily against a basket of currencies, mainly the Euro, British pound, Aussie dollar and Japanese yen.

For many futures traders, catching a trend with few if any reversals that lasts for more than a week is a dream trade. Riding a trend for a few weeks is almost unheard of. Short-term or swing traders are an impatient bunch. Once a trend has begun, many of us attempt to time when it will end. Often traders walk the line bordering on psychosis. First, they work hard to recognize the onset of a trend early on; then they can’t wait until it ends.

So, now that the dollar is in the midst of an uninterrupted three-week rally, I am searching for reasons to pick off the high of the move just before it reverses lower.

Before trends change there are often clues or subtle changes that precede reversals.  Here are a few:

• As a market moves higher there is a tendency to close out the days above the high-volume price of the day session. And closes below fair prices are common in a downtrend. Thus, when the opposite occurs, it is an indication that the trend is near an end.
• In an uptrend lows tend to be made during the first hour of regular trading hours. And highs tend to be made in the initial hour during a decline. When the opposite occurs, it signifies a trend may be exhausted.
• Another indication of change comes when volume and range length diminish.

Impeccable timing of trend end and or reversal is a difficult task, but it is something most traders endeavor to do. It may come easier if you focus on a few short-term signals that often precede change.

John Seguin, Market Taker Mentoring