Trend Analysis and its Characteristics.MCX:GOLD1!
What is Trend and how to identify it?
A trend is the overall direction of a market or an asset's price.
an uptrend is defined using peak and trough analysis. An uptrend is represented by a series of successively higher highs (peaks) and lows (troughs), while a downtrend is represented by a series of successively lower highs and lows.
->One can identify it by determining peaks and troughs.
->By using trendlines
->Price remaining above or below an overlay indicator.
we can quickly identify the general direction of a market or an asset by looking at the price chart but what we have to learn is to identify the quality of the current trend and how we can do that, by gauging the strength of the trend.
Here are some significant points which help us in understanding the mood and quality of a trend.
The highest skill any trader can aspire to is the ability to read pure price action.
1. Cycle Amplitude
Look for decreasing cycle amplitude in uptrends and downtrends.
A decrease in cycle amplitude in an uptrend is an early indication that there may potentially be an underlying weakness in the uptrend.
In a similar fashion, a decrease in cycle amplitude in a downtrend is regarded as a bullish indication.
2. Cycle Period
A gradual reduction in the cycle period during an uptrend is an early indication that there may potentially be an underlying weakness in the uptrend and a gradual reduction in the cycle period during the downtrend is a bullish indication.
3.Average Bar Range
A decrease in the average bar range in an uptrend and downtrend is an early indication of potential weakness in the current trend.
-> you can track the bar range using the average true range (ATR) oscillator
4.Bar Retracement Symmetry
A change in the number of bars in a retracement is also an early indication of a potential change in trend behaviour.
5. Average Candlestick Real Body to Range Ratio
A gradual decrease in the real body to candlestick range is also an early indication of potential weakness in a Trend.
6. Angular Symmetry and Momentum
Any change in the Angle of trend is significant:-
i.) An upside acceleration in price is bullish whereas an upside deceleration in price is bearish
ii.) A downside acceleration in price is bearish whereas a downside deceleration in price is bullish.
#It should be noted that although an upside acceleration in price is bullish, the uptrend may not be self‐sustaining if the rate of ascent was excessive. Such rapid increases in price usually end in a blow-off or buying climax with prices subsequently collapsing. Similarly, downside acceleration in prices may also end in a selling climax.
7. Frequency and Depth of Trend-Based Oscillations
When a trend moves with reasonable retracements not too short and not too big, it indicates a healthy trend which has profit taking along the way as the trend unfolds.
Traders and investors tend not to react as emotionally and irrationally at higher prices where the risk of losing pent‐up and unrealized profit is greater.
8.Relative Measure of Consolidation Size and Duration
Trend interruptions are more significant if:
■ Price formations are of greater magnitude (taller chart patterns).
■ Price formations develop over a longer period (wider chart patterns).
Larger trend interruptions normally tend to lead to a greater probability of a reversal. In a strong uptrend, a larger head and shoulders formation would be deemed more bearish than a smaller formation. Similarly, a larger rounding bottom formation would be more bullish than a smaller one in a downtrend.
In short, size takes precedence over form. Moreover, the longer it takes for a consolidation to unfold, the greater will be its disruptive power with respect to the trend, should a reversal occur.
By considering these characteristics while analysing trend will give a in depth insight and helps in making more informed and rational decisions.
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