Dow observed that trends will continue until they show a definite ending signal. As spotting this ending signal represents a good opportunity for us to make money, it is a logical place to begin the study of price analysis.
A trend is simply the general direction of the market. You may have heard such popular sayings as “the trend is your friend” or “never buck the trend”. These sayings are true. Trends are where a trader makes his living. Even traders who trade range bound markets are simply using sub-timeframe trends to make their living.
The first logical question is, “How do we recognize that a trend exists?” This is answered above in the Dow Theory – an uptrend consists of successively higher highs (peaks) and higher lows (troughs) whereas a downtrend consists of successively lower highs (peaks) and lower lows (troughs).
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