Trend identification can be called the keystone of
technical analysis.
The price typically moves in a wave like motion forming a
series of peaks and troughs. The direction in which these peaks and troughs are
moving is called the trend.
In an uptrend, we have a series of higher peaks and
higher troughs.
In a downtrend, we can see successive lower peaks and
troughs.
When the peaks and bottoms move horizontally we call it
the sideways trend.
An example is the stock of Reliance Communications is in
a downtrend since January 2008.
A stock chart that resembles a roller-coaster ride is
typically in a sideways trend.
Sintex Industries is moving between Rs 60 and Rs 250
since 2006. Such sharp price swings are common when stocks enter a sideways or
consolidation phase.
Trend identification is done with help of trend lines.
Constructing a trend line is fairly simple. When the stock is in an uptrend,
the trend line is constructed by joining the troughs formed during the uptrend.
Conversely, a down trend line is formed by connecting the
peaks formed during the down trend.
A buy signal is generated when the stock price moves
above the down trend line. A sell signal would be generated when the stock
price moves below the up trend line.
Lets look at one more example:
Andhra Bank has been in a downtrend ever since it peaked
at Rs 190 in December 2010. The next significant peak was formed at Rs 159 in
April 2011. We should join these two peaks with the help of a trend line.
This downward sloping trend line was breached in February
this year thus signalling a trend reversal.
Nice blog post has been shared here. it was fun visiting your this blog post. thanks for sharing such blog post here.
ReplyDeleteWorld Trade Center Greater Noida is latest commercial project in Noida. It is developed in the famous area in Noida.