The Trend

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The Trend identification is most probably the most important element of technical analysis. It points out where the market is headed and one would be wise not to go against the trend.

It can be in any of the following 3 forms

An UP trend is characterised by two peaks and two troughs, each one being higher than the previous one.

trend

A DOWN trend is characterised by two peaks and two troughs, each one being lower than the previous one.

trend down

A RANGE market is one where the Trend is neither up nor down and the market price fluctuates between some levels.

trend

 

How to measure Trend 

The following indicators can be used to measure if the Trend is Up or Down

1)  Moving Average: An indicator calculating the average value over a number of past periods

2)  Moving Average Crossover : An indicator comparing the values of 2 Moving Averages of different periods  one shorter than the other

3)  Moving Average Convergence Divergence value (MACD) An indicator measuring the difference between two different Moving Averages

4)  Relative  Strength Index (RSI) :  An indicator comparing past closing value with current to test how strong the trend is. Measured on  0 to 100.

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