Tuesday, February 10, 2009

Know the Trends

Anything that has the posibility of repeating pattern has a trend.

A trend analysis is trying to determine what pattern will occur next base on historical occurance.  Sounds familiar ?  Indeed it is, historical records do NOT guarantee future result.

Performing simple trend analysis is simple and straight forward :

First plot the pattern in a graph,
Then try to connect all the low points using a straight line,
Likewise do the same with all the high points.

Not ALL points can be connected perfectly.  You will have to use your judgement to 'best match' them.

Do not make guesses or judgement when drawing these 2 lines.  ONLY connect all the LOW and HIGH points, no other adjustment is needed ( at least not for now ).

So by drawing these 2 lines, you can tell if it is in ;
UP Trend
Down Trend 
Trend Sideway or 
No Trends

When you are having a tough time to draw any of the line following above method.  Then its a No Trend iendified condition.

Once you know the trends, you can 
chase the up and down trends
trade with care on side trends and
do NOT trade in no trends

Chasing up trend is also called Long where you buy now sell later which is what normally stock investment is.

Chasing down trend is Short : sell now buy later, usually used more in derivative market.

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