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The Trend is your Friend

 


 



Continuing with our "The Technician: From Beginner to Expert" series in this post we will learn about trend analysis. So, many times you might have came across sayings like, "the trend is your friend", "always trade in the direction of the trend", "never buck the trend" etc. but what the word "trend" in these sayings mean? Here I go explaining it to you...

I would simply put it as the "overall direction of the price movement". Trend can be of different horizons short term, medium term and long term depending upon the direction of price movement during these time periods. Important thing to remember here is that there is nothing like always rising or always falling in the stock market. So, we are using the word "overall" in our definition. Let's see what are the different types of trend in the market



Types of Trends: 


1) Up trend- 

Up trend or bullish trend is the one in which the overall direction of the price movement is upwards.

As we already know price moves in waves ups and downs it can't be up move all the time but in a up trend there will be higher highs and higher lows each time with overall movement towards the sky.

When the market or any particular stock is in up trend that is the best point to go long. Get into it and ride it till the trend reverses

2) Down trend- 


     

In case of down trend the overall price movement is downwards and the price makes lower highs and lower lows as can be seen from the above diagram. Now, when we know it from this point of time we should never get into any stock which is in down trend. 

3) Sideways Trend- Sideways trend or No trend is when the price is neither moving sideways nor upwards but traing in range for several days. Its better to stay away from the market when its showing no trend at all. Following are few examples of each:

The following figure will help you understand the trend easily:


In order to be profitable we should buy the stocks which are in uptrend and if after being in uptrend for a considerable amount of time it starts moving sideways that's the point where we should start booking our holdings partially and we should never hold or buy any stock which is in strong downtrend:


Also, point worth mentioning here is that trend can be of short term or long term. We should look at the charts of the periods we are planning to hold it to determine the direction of the trend. I generally use 9 months or yearly charts to base my decision. Following figure represents all three trends:



To summarize, 

1) Look at charts before taking position in any stock, buy only if the stock is in uptrend
2) Upternd is the situation when the overall direction of the price movement is upwards, in downtrend the price moves downwards, in horizontal or sideways trend the price movement remains more or less within a range.
3) Uptrend, downtrend or sideways can be of short term, medium term and long term durations. Look at the charts for the period you are planning to hold your stock in future. I generally recommend yearly or 9 months charts

Hope I was preety clear with it. If you have any query the same can be answered by me.

Also check:

Introduction to Charting
Technical Analysis: The Introduction

Happy Investing 
Multiplier Wealth

10 comments:
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  1. This comment has been removed by the author.

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  2. hello abhi sir,

    Thanks for posting such wonderful articles related to technical analysis.please keep posting.

    i need your views about following stocks which i am holding for medium to long term.
    please advice

    1) ybrant digital @55
    2) polyplex @ 260
    3) hindustan tin @ 90
    4) galaxy entertainment@ 48

    thanks

    ReplyDelete
    Replies
    1. galaxy entertainment doesn't seems interesting to me all above including prima plastics are good for long term investment...................

      Delete
  3. Hello abhi sir,

    thanks for reply
    Polyplex results are not so good in Dec'14. so should i continue to hold it or shift ?
    what is your opinion on kopran?

    ReplyDelete
    Replies
    1. kopran is in downtrend so avoid..................... you can hold polyplex with 190 stop loss

      Delete
  4. Hi...how to calculate target price n time frame while stock is in uptrend?
    Also i checked prima palstics today 6.3.15, i could see trend is getting downward?
    Am i right abi sir?

    ReplyDelete
    Replies
    1. yes bro prima is in downtrend as of now.................. for targets and timeframe keep following our latest posts u will learn how to calculate them

      Delete
  5. Hi Abhi Sir,

    When you say the below sentence.

    "Look at the charts for the period you are planning to hold your stock in future"

    Does that mean

    If i want to invest in stock A and hold it for next 2 years then I should look into the charts of stock A for the previous 2 years to determine whether the stock in uptrend,downtrend or sideways.

    Is that correct.

    Thanks in Advance.

    Thanks,
    Shashiraj NK

    ReplyDelete
    Replies
    1. yess buddy u need to check the past movement of the stock for that particular period generally i watch 1-2 year charts before entering any stock

      Delete