Identifying trends with trend lines

#1
Identifying trends with trend lines

THE TREND IS YOUR FRIEND
The price chart of a stock or commodity may appear like a random distribution, but this is not so. About 30% of the time a stock or commodity will be in a definite trend. The rest of the time prices will trade more or less in a side ways range.

As a trader or investor it is our job is to recognize trends early, as they emerge from non trends or as reversals of prior trends. Then to buy or sell stocks or commodities early in these new trends and exit the trade profitably when the trend ends. This identification of trend, its birth and demise, is the most important thing we have to do. This is how fortunes are made.

Trends
Trend is the easiest and the most difficult thing to understand. The difficulty arises because of the time factor. Whenever we talk of trend it has to be related to the context of time. An intra-day price chart may show a significant trend which is contrary to a trend recognizable on a daily price chart which may be contrary to a trend on a weekly chart.

Successful investing depends on recognizing the secular, primary or long term trend. To be successful one should take a position when at least the short term and intermediate term trends are in the same direction.

Definition of trend.

An up trend is present when prices make a series of higher highs and higher lows.

A down trend is present when prices make a series of lower highs and lower lows.

When prices move without such a discernible series prices are said to be trading side ways or in a trading range.
 
#2
Identifying uptrends with trend lines

Identifying uptrends with trend lines

To identify an uptrend draw a straight line from the lowest low of the period to the lowest low prior to the highest high so that the line does not pass through prices between these two.

See attached chart for example.
 

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#3
Re: Identifying downtrends with trend lines

Identifying downtrends with trend lines

To identify a downtrend, draw a straight line from the highest high of the period to the highest high prior to the lowest low so that the line does not pass through prices between these two points.

See attached chart for example.
 

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#4
Identifying Trading range

Identifying trading range

It is estimated that stock and commodity prices may spend as much as 70% of their time in a relatively narrow trading range. These periods of sideways or ranging market action may be periods of accumulation at market bottoms or distribution at market tops or consolidation during trends. For nimble short term traders they can be an opportunity to make profits but BIG PROITS come from identifying and trading trends. Our purpose is to identify the beginnings and ends of trends early and to profit on the development of that trend. However, periods of range trading can be of help to us and it is worthwhile recognizing them, monitoring them, for eventually the range will end and break into a trend.

Ranges can be identified by the up and down price movement between areas of distinct support and resistance. Once the boundary of the range is broken then we should be prepared to act. Sometimes the market fools us by breaking out of the range only to quickly reverse and proceed entirely in the opposite direction. Therefore, on the break out of the range one must either wait and see the breakout confirmed or, if not confirmed, allow a 3-5% price change to occur.

See attached chart for example.
 

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#6
Mohan said:
Very informative and interesting article.

Keep it up!!

What is the current trend of the market?
As the chart indicates we are in an ...

See attached chart.
 

Attachments

#7
Re: Identifying uptrends with trend lines

Identifying uptrends with trend lines

To identify an uptrend draw a straight line from the lowest low of the period to the lowest low prior to the highest high so that the line does not pass through prices between these two.

See attached chart for example.
STILL THE CHART IS NOT CLEAR.CAN PLS U EXPLAIN THE CHART.WHEN U GIVE VALUE OF UPTREND THE IT WILL SHOW UPTRAND ONLY.HOW WILL U JUDGE THT PARTICULAR CHART WILL GO UP R STAGNANT.KINDLY PLS EXPLAIN.
 

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