How to Interpret Trend Lines
What is it that trend following is really all about? Synonyms: Term. Trend denotes an impelling force, at times amounting essentially to an impelling force. a general trend toward inflation trend generally applies to the general direction pursued by an unstable or winding pattern. This pattern can be one characterized by an increase in prices or wages, or both.
The directions of the trend are not fixed, and neither are the time frames in which they evolve. Trend follows price changes, which in turn evolve within various time frames, and is influenced by external factors such as government policies, technological change, internal politics among others. In fact, over long time frames, there can be no trend, as prices do not tend to follow a common direction. The only direction that prices generally tend to move in is toward the lower end of the range. This is what we call a trend, and trend followers are people who believe that the market will tend to move back to a more acceptable level in terms of its values.
To help traders identify the trend direction, chart patterns are used. Chart patterns are basically the means by which traders know which way prices will move, and where they will move. There are many types of chart patterns, including the moving average line, the Stochastic, the Relative Strength Index (RSI), the exponential moving average and the symmetrical triangle. Traders who trade on major exchanges need to be familiar with all of them because the prices of these commodities move quite frequently in relation to each other and so do the charts.
There are different types of trends, and they generally depend upon the direction of macroeconomic policy, as well as their own inherent characteristics. Some traders focus on short term trading, while others may put their efforts on long term trading. Trends are also affected by fundamental factors like the state of the economy, the status of major world currencies, and the rates of interest of debt. In short, trends can indicate where the market is headed in relation to external factors. If you are a trader, then trends provide you with useful information about market direction.
When you see a trend, it is important to understand its definition. A trend can be considered as a general direction in which the market is heading. As the name implies, a trend can be expected to continue over a period of time, although not all trends follow this path. A trend can either be a bearish trend or a bullish trend, but there are also those that are neutral, meaning they follow no general direction.
Bearish trend: A bearish trend is one in which the share prices are falling, and prices cannot rise. For example, in a downversion, a stock price will usually drop by a certain percentage point before recovering. The uptrend, on the other hand, is a directional trend, where a stock price is likely to rise. Uptrends are typically considered to be a good thing, because it gives the trader an opportunity to buy low and sell high. Bearish trend directions can be reversed by taking advantage of an uptrend. Conversely, traders should be careful about trading against a bearish trend, because it is possible to get into an uptrend before reaching a certain point.