How to Identify Trendlines and Forecast Volatility Using Simple Price Action

In the world of internet marketing, when something becomes trendy it’s usually the subject of several blog posts discussing the trend. In the realm of business, a trend is usually a general trend of marked change in a particular industry, product, or status quo. Generally speaking, it’s a general expectation or average. A trend may be starting out at a slower pace but that speed could quicken as business conditions change. When a trend becomes well established in one industry, it can spread to other industries quickly and dramatically.

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There are many types of trends in business and life. You have the long-term trends which take longer to develop. The medium term trends, where a trend may start out slow but work its way up over a longer period of time. The short-term trend, where a trend is developing or changing quickly and abruptly, is known as a bear market. Trending describes any of these three types.

Long-term trends tend to be more reliable because they are what people have been doing for many years. Examples include fad diets, trends toward owning cars and homes, and general direction of the economy. If a trend continues over a long period of time, you can expect it to eventually result in a change. So if the public likes the trend so much, it will continue for a long period of time until something changes in the general direction, such as new technology, consumer tastes or a change in public policy.

But trends can also be temporary. A short-term trend, or bull market, may just be beginning. Sometimes investors are fearful of investing in something for a while. Other times people simply feel that a stock has hit a plateau and they want to hang on to it for a while. In this type of situation, a trend analysis looks at the history of that stock and its prices and attempts to predict whether it will continue to move up or down in the future. Doing this over a longer period of time can give a better picture than just looking at the short-term metrics such as the current price or trading volume.

Some types of trend lines can be used to help investors determine when to enter and exit a market, depending on whether the trend is up or down. Indicators such as moving averages and oscillators can be used to show the trend’s strength or weakness. However, market sentiment can often affect where traders enter and exit a market. Traders look to other traders for support and resistance in a downtrend. When markets are rising, traders will look to others for resistance, while when markets are falling, they seek to strengthen their positions.

Traders need to consider the total amount of risk and money available to them and set stop-losses accordingly. Because trending markets exhibit greater volatility, traders may find themselves “off the trading bandwagon” if they do not carefully manage their risk controls. They may attempt to buy on breakouts but quickly sell once price action returns to previous levels. Likewise, they may attempt to short sell on breakouts but fail and become bears as price action reverses its trend. Alternatively, stop-losses traders may decide to simply sit on their investment and wait for the trend to reverse itself.

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