Trend analysis is a method of identifying a change in financial data over time. It helps you understand a company’s performance in a particular market or industry, and can be useful for determining how to invest in that business.
A trend can be up, down or sideways in nature and is characterized by higher highs or lower lows on the chart. Uptrends are typically based on higher highs and higher lows, while downtrends are based on lower highs and lower lows.
An uptrend is a positive signal in that it suggests that prices are rising and could be heading upwards. A downtrend, on the other hand, is a negative signal in that it suggests that prices are falling and could be headed downwards.
Uptrends can be short, intermediate or long-term in duration. Traders use a variety of methods to determine which trend is best for them.
When a market is in a bullish trend, buyers are encouraged to purchase and a strong uptrend will result in higher highs and lower lows. A bearish trend, on the other hand, will see demand drying up as prices fall and a weaker uptrend will result in lower highs and higher lows.
A trendline is a visual tool that can help identify the current and future direction of a market, and also warn you when a trend is reversing. A trendline can be drawn on a variety of time-frames, such as the daily chart and the 15-minute chart.
In some cases, a trendline may be broken, and in other situations it will need to be redrawn to reflect new price action.
The base year is the date on which a company’s accounts are compared to. To calculate a trend percentage, you need to compare each account’s dollar amount from a given year against its base year amount.
Generally speaking, trend percentages are calculated as 100% for the base-year value and 0% for the values in the second and third years. However, if the base-year amount is negative or zero, then a trend percentage is not meaningful.
Trend lines are usually drawn on candlestick charts, but they can be analyzed using any other charting system that includes a line chart. The key to a trend line is finding at least two points in the market that point in the same direction, such as swing highs and lows.
In the example below, a trendline was drawn over the price, showing that the price had been rising for over 18 months. It was a bullish trend and the RSI reading suggested that it was still on the rise.
Once the RSI started to fall below 70, it was a sell signal. The next day, the trendline was broken and the price gapped below it, confirming that the uptrend had turned down.
A trendline can be a powerful tool to help you determine when a trend is ending, but you must remember that it isn’t a reliable indicator of the current direction. It is a good idea to look at other technical indicators, such as the Moving Average Convergence Divergence (MACD), to determine whether a trend is still going or if it is reversing.
