Pick Out Your
Trading Trend by Martin J.Pring
There are three kinds of trends: short, intermediate, and long
term. This veteran trader and analyst explains how you can
spot them and use them.
Technical analysis assumes that all
the knowledge, hopes, and fears of
both active and inactive market
participants are reflected in one
thing: the price. Even if I am in a
cash position, I am still influencing the price because it would be
higher if my cash were invested.
Thus, prices are determined by
psychology. This would just be an interesting observation,
except that psychology moves in trends,and so do prices.
Most of the technical tools we use are aimed at identifying
trend reversals at an early stage. We ride on trends until the
weight of the evidence shows or proves that the trend has
reversed — in this case, the number of reliable technical
indicators all pointing in
the same direction.
Hence, the greater the
number of indicators signaling a reversal, the
greater the probability
that a reversal will take
place. It is important to
remember that technical
analysis only deals in
probabilities, never certainties. Unfortunately,
there is no known method
of forecasting the duration and magnitude of a
trend with any degree of
reversals is hard enough.