Table of Contents
Definition of Trend: –
The direction of the price movement in Technical Analysis is known as trend. Price line at a given point of time has to follow a particular direction which is known as trend. Price, at any point of time, can either go up or come down or remain as it is hence trend are of three types.
1. Up trend
2. Down trend and
3. Choppy trend or Flat trend or side-wise movement.
A trend is said to be up so long the price action keeps on forming higher Tops and bottoms. A trend is said to be down when the price line keeps on making lower tops and lower bottom. In a choppy trend price action does not create any clear-cut tops or bottoms rather price moves in a straight-line fashion. In up trend demand is greater than supply. In down trend supply is greater than demand. And in a choppy trend demand and supply are almost equal.
Nothing last forever, likewise a trend will not. In an uptrend when the price action breaks the last higher bottom, it is an early signal that the existing up trend is in trouble. Formation of lower tops and bottoms confirms the beginning of a down trend. In a down trend when the price action creates the first higher tops bottoms and higher tops in signals that the down trend is over and the up trend has resumed. Price can not rise or fall in a straight-line fashion. It has to reverse the direction periodically to recharge itself to move again in the previous direction with fresh energy. There opposite movement of the price is known as counter trend. To define a counter trend, a trend at a particular point of time got to be interrupted by a trend which goes against the previous direction, is known as counter trend. The main characteristics of a counter trend is that it always goes against is prevailing trend. In an up trend the counter will be down and in a down trend a counter will be up, so in an up trend every successive fall is an opportunity to buy chip. In a down trend every rally is a scope to sell. 1but when it is choppy no decision can be taken and one should wait either for a break up or break down as the case may be.
Trend Line: –
It is those lines which are drown in the charts either by connecting the rising bottoms or by connecting the falling tops. It requires minimum two points to draw straight line. Hence two tops or two bottoms is the basic requirements of trend lines.
A line which is drawn by connecting the rising bottom is called up trend line. Violation of an up-trend line is the early signal that the uptrend has started developing crisis. A line which is drawn by connecting the falling tops is known as down trend line. So long the price action remains bellow the line trend is said to be down. Penetration of a down trend line on the up side is a signal that the existing trend is gradually changing.
Measuring Implication of Trend Lines: –
Trend line can measure the target of the subsequent movement once it is challenged. Once a trend line is broken either side, we have to point out the maximum point which the price had travelled prior to the violation. We have to measure the distance between that maximum point and the trend line and project the equal distance from the point of violation to achieve the minimum target of the subsequent movement.