Trends and Trendlines
Traders are often accustomed with the sayings:
The trend of a security is the general direction in which the security is heading.
Trends divide into 3 types:
1) Up trend- A security is going up making higher peaks and higher troughs.
2) Down trend- A security is going down making lower peaks and lower troughs.
3) Sideways trends (consolidation)- lack of direction where the price of the security goes in a horizontal direction
Looking at the following picture, we can see the different types of trends:
Trend Angles:
It is important to observe the angle of the trend as the larger the angle of the trend, the more force it has behind it.
1) A trend with an angle of 45 degrees is classed to be secure trend. The angle of the trend shows to the trader that the security’s trend is gradually strengthening.
2) A trend with an angle above 45 degrees is classed as a rally in the security. Caution is required during trends like these as what ever goes up always comes down. The faster it goes up, the faster it will come down.
3) A trend with an angle below 45 degrees should be checked with other indicators as small angle trends are often a situation of lack of interest in the security.
