Title: TA Tip (3)
Hc - May 14, 2005 03:06 AM (GMT)
TA Tip (3): Trend
We all heard that trend is our friend, and we must trade with direction of the trend.
But what is a trend? If we don't know that is a trend, now do we make trend our friend, leave alone trade in its direction?
The main concept of trend is general direction. Or generally speaking where is price moving (up or down).
How do we say that the price is moving in up trend? One way is to see higher highs and higher lows. Down trend is just the reverse: lower highs and lower lows.
A very simple and straight forward concept. So simple that many overlook its importance and implication.
Let us take a look at the attached daily chart of Sunpower. These are the messages I got just from reading the price chart, without taking other data (eg Volume) and indicators into consideration:
1. From bar a to b, all bars are of lower highs and lows. So the conclusion is: down trend.
2. Bar c give a higher high and higher low. This gives 2 indications:
( A ) trend from bar a-b may be ended
( B ) Bar c may be a start of trend reversal or trend correction
To confirm ( A ), a trend reversal, bars subsequent to bar c have to take out the high of bar a at 0.33, which is quite far away. We can be sure of ( B ). To further distinguish if bar c is reversal and not just a correction, bars subsequent to bar c should never go below that of the low of price b.
3. Bar d did not make a higher high but make a lower low than bar b. Conclusion: bar c is just a correction and the general trend (down) continues.
4. Bar e we see the same thing as bar c and bar f continues the down trend.
5. From bar f to h, we saw a tight range of price movement where we do not see any meaningful higher/lower highs/lows. Conclusion: price is now directionless.
6. Bar i break down. If we view from bar g to j, we see lower highs and lower lows again: it is a down trend.
7. Bar k give a higher high and higher low. This is similar to bar c. The difference is that we now see a higher highs and higher lows from bar k to l, indicating the correction/reversal is in progress.
8. Bar m did not give a higher high, indicating the up move from bar k to l maybe (maybe only) ending. We have to watch the subsequent bars to know where the price is heading again.
How many of you see all these information just from the price chart?
(HC note: this posting is edited on 2006-04-13 to fix the broken link to image file)
We all heard that trend is our friend, and we must trade with direction of the trend.
But what is a trend? If we don't know that is a trend, now do we make trend our friend, leave alone trade in its direction?
The main concept of trend is general direction. Or generally speaking where is price moving (up or down).
How do we say that the price is moving in up trend? One way is to see higher highs and higher lows. Down trend is just the reverse: lower highs and lower lows.
A very simple and straight forward concept. So simple that many overlook its importance and implication.
Let us take a look at the attached daily chart of Sunpower. These are the messages I got just from reading the price chart, without taking other data (eg Volume) and indicators into consideration:
1. From bar a to b, all bars are of lower highs and lows. So the conclusion is: down trend.
2. Bar c give a higher high and higher low. This gives 2 indications:
( A ) trend from bar a-b may be ended
( B ) Bar c may be a start of trend reversal or trend correction
To confirm ( A ), a trend reversal, bars subsequent to bar c have to take out the high of bar a at 0.33, which is quite far away. We can be sure of ( B ). To further distinguish if bar c is reversal and not just a correction, bars subsequent to bar c should never go below that of the low of price b.
3. Bar d did not make a higher high but make a lower low than bar b. Conclusion: bar c is just a correction and the general trend (down) continues.
4. Bar e we see the same thing as bar c and bar f continues the down trend.
5. From bar f to h, we saw a tight range of price movement where we do not see any meaningful higher/lower highs/lows. Conclusion: price is now directionless.
6. Bar i break down. If we view from bar g to j, we see lower highs and lower lows again: it is a down trend.
7. Bar k give a higher high and higher low. This is similar to bar c. The difference is that we now see a higher highs and higher lows from bar k to l, indicating the correction/reversal is in progress.
8. Bar m did not give a higher high, indicating the up move from bar k to l maybe (maybe only) ending. We have to watch the subsequent bars to know where the price is heading again.
How many of you see all these information just from the price chart?
(HC note: this posting is edited on 2006-04-13 to fix the broken link to image file)
oriole - May 15, 2005 01:27 PM (GMT)
Hi Hc
Thanks for the step by step guidance ;)
Thanks for the step by step guidance ;)
hybridvestor - May 15, 2005 04:01 PM (GMT)
Thanks HC for the detailed explanation.
Looking forward, since we are unable to predict what is the next price level, what should we do based on this chart ?
Best regards.
Looking forward, since we are unable to predict what is the next price level, what should we do based on this chart ?
Best regards.
Hc - May 15, 2005 05:44 PM (GMT)
hybridvestor:
This message is meant to just discuss that is trend, reading just from price chart. In trading, I would take into consideration many other things. Take a look at the Sunpower thread to see my reading as at 2005-05-12, which is still valid now.
You are right to say that we are unable to predict price movement. As to what should one do, it depends on a lot of things; things like whether now does one hold a position in this counter, like one's risk tolerance etc.
This message is meant to just discuss that is trend, reading just from price chart. In trading, I would take into consideration many other things. Take a look at the Sunpower thread to see my reading as at 2005-05-12, which is still valid now.
You are right to say that we are unable to predict price movement. As to what should one do, it depends on a lot of things; things like whether now does one hold a position in this counter, like one's risk tolerance etc.
Hc - October 11, 2005 10:20 AM (GMT)
"First of all, you must understand what makes a price. The law of economics will tell you that, the equilibrium price is determined by demand and supply."
Joshing had a interesting comment on Price vs Indicator, which echo the similar point as I stated here. Do take a look at:
http://info.channelnewsasia.com/bb/viewtop...p=195836#195836
(PS: I must put on record that I don't agreed with the comment that "when the uptrend breaks, the resultant trend is a downtrend". Just a different opinion, and not picking a fight, OK? :) )
Joshing had a interesting comment on Price vs Indicator, which echo the similar point as I stated here. Do take a look at:
http://info.channelnewsasia.com/bb/viewtop...p=195836#195836
(PS: I must put on record that I don't agreed with the comment that "when the uptrend breaks, the resultant trend is a downtrend". Just a different opinion, and not picking a fight, OK? :) )