Trends for beginners
Despite trying to keep my posts simple and easy to understand, I’ve been guilty of using jargon without always realising it, and in my recent posts on the 1-2-3 breakout trading system I didn’t make much of an effort to clarify trends.
In this post we are going to rectify that and use some basic technical analysis skills to give you a basic outline of trends.
In order to identify a trend, you first need to identify the peaks/highs and troughs/lows in a series of price bars or candles.
Take a look at the chart below, as it easier to understand how to recognise highs and lows with the example, than it is for me to explain.
You can see from the chart that each peak/high is higher than the one before it, and also that each trough/low is also higher than the one previous.
A sequence of higher highs and higher lows represents an up trend.
If instead there is a sequence of lower highs and lower lows, as in the chart below, then this represents a down trend
The last direction the market can take is a sideways or congested market, as shown by the chart below.
Trends can be identified on any timeframe. With longer timeframes, you can identify the long term trend of a stock or market. With shorter timeframes, you can see any short term trends and counter trends that are occurring.
While it is quite possible to trade profitably on any timeframe, it is generally not a good idea to attempt to trade counter trends until the trader has gained solid trading experience.
Happy Trading
Brian Dibbins
Trade Profitably © 2006 - 2007
14th August 2007
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