All freely traded markets are trending at all times. There are four major trend timelines in effect at all times. The first is the the long term time frame. It lasts from months to years and is the domain of the investor. The second is the intermediate term time frame, this exists in a period of weeks to months. The third time frame, the one I am primarily concerned with, is the short term time frame, the domain of swingtraders. The fourth, a very minor time frame is micro. This exists in a period of seconds to a day or two. Daytraders operate in this time frame. Each of these can be moving in different directions at any time.
It is important you know which way the trend you are dealing with, and the trend one order higher, is going. There are uptrends, downtrends and sideways trends. We concern ourselves with uptrends and downtrends for the most part as these present the easiest opportunity for us to make money.
An uptrend occurs when a stock is making a series of higher highs and higher lows. It will consist of rallies interrupted by short term sell-offs, generally profit taking, which should stop the down move at or near the area of the last low. In the strongest of uptrends however, this sell-off will stop at the area of the last minor high, that being visible as the last peak on the chart.
A downtrend occurs when a stock makes a series of lower lows and lower highs. It will consist of sell-offs interrupted by short term rallies. The rallies will occur over the span of up to several days. Then a sell-off will again occur and the cycle repeats itself until a fundamental event changes the trend.
Brandon |
