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Friday, January 25, 2013

The Importance Of The Trend

One of the most importance features in TA (Technical Analysis) is the trend. Before you buy or sell, you should have a look at the trend of the stock. How do you do that? The only way I know is to look at the chart. ( I wonder how people who do not believe in charts do it.)

With a chart it is easy for you to know the trend. When you see higher highs and higher lows, you have an uptrend. When you see lower highs and lower lows, you have a downtrend. Your can also have a sidetrend which means that prices are moving sideways in a narrow range.

Once you have determined the trend, you can then decide what action to take.
Buying in a downtrend should be avoided, especially when the downtrend is initially moving down after a long uptrend.

Similarly, selling in an uptrend should also be avoided, especially when the uptrend is just beginning to trend up after a long downtrend or a long sidetrend.

Many people make the mistake of selling in the initial stage of an uptrend. This is because they have been holding the stock for too long at a loss, and when they see a chance to get out at a small profit or a small loss, they quickly do it. This is a grave error, because more often than not, the price continues to move up after their sales.

How many times have you heard people say this, "I sold out just before the big rise?" Remember this: A trend in motion is likely to continue.

Never be the first to sell in an uptrend nor the last to buy. Never be the first to buy in a downtrend nor the last to sell.

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1 comment:

jeremiah81 said...

You might want to check this technical analysis program: http://www.cognitum-research.com/en/wave-explorer