Using Trendlines in identifying Trends
Trend is the general direction of a given trend, sometimes numbering in the hundreds of percentage points. Synonyms: Abbreviation: Trend denotes the tendency in the numerical data over a long period of time. The trend may be represented graphically by a moving average or line. A general trend toward increasing inflation is called a rising trend.
There are many different types of trend. Long-term trend (LTC), which can range in length up to 10 years, exhibits relatively steady growth in a given period of time. The long-term trend is a simple function of interest rates and increases with them. Conversely, near-term trends (NC) are quick changes in price that usually take place in one month to three months. The longer-term trend is more affected by factors such as inflation and government policies.
The slope of the trendline indicates the degree to which the current price is above (trendline high) or below (trendline low). Another factor that affects trend direction is the duration of the trend. The higher the duration, the stronger the trend. The length of the trendline between trendlines indicates the highest and lowest prices in the trend. The middle of the trendline indicates a breakouts.
Technical indicators can help traders identify breakouts, high points, and support areas, in addition to trendlines. Support areas include the previous highs and lows for the given time period, whereas high points include the pivot points that were reached in the recent trend. Some trendlines may not be useful for predicting price action, since their slopes will always be a bit different from the target line.
Trend research plays an important role in identifying trends. The basic idea behind trend research is that price movements are influenced by fundamental factors more than by technical ones. However, there is still some scope for predicting the future direction of the market. It is important for trend researchers to keep themselves abreast of developments in the financial markets, in order to determine the sustainability of existing trends. Trends can change dramatically over short periods of time.
A key tool for trend research is the use of uptrends, which show the reversal of trends. Uptrends are often used to signal the end of a bullish trend, and they appear as either sideways or upward ticks. They are most often seen during times when the market is experiencing strong growth, such as during a bull market. The use of trending indicators combined with technical studies can help traders get a better understanding of the market and make wise trading decisions.
