Use Technical Analysis To Find Trends! Who likes trading by trends should be aware that almost every trend goes through particular stages. Recognizing those can be crucial, as it can help to determine necessary actions such as starting to follow and unfollowing trends right in time. Basically, there are three stages that every trend goes through.
The 1st stage is the emergence of a trend, followed by the 2nd stage, the further development that cannot be forced into an estimated time frame. The time in which the trend continues cannot be determined with certainty. Therefore, some trends may last only a few weeks, while others can go on for years. The 3rd stage, finally, is the end of a trend, often followed by a trend reversal.
Recognizing trends with the Technical Analysis
For a timely identification of trends, most investors rely on the Chart Analysis. This technique can help to analyze and to visualize rates and stock prices over time so that possible trends can be recognized easily and quickly. Next to manual analyses, many programs have been developed that simultaneously record data about several courses and automatically send out alerts when a trend has emerged. These automated programs can be of great help to investors, but all the same, it is helpful for traders to know how trends can be monitored manually. Therefore, it is important to put effort into understanding the technical analysis and the trading signals of this particular technique that always occur due to changes in security prices.
Candlesticks are reliable indicators
There are many methods and tools that can help to identify trends when using Chart Analysis. Indicators alert traders of the possible existence of a trend. One of these indicators used to support the Chart Method is the so-called Candlestick that originated in Japan and is now used all over the world. Candlesticks consist of special formations to help the investor recognize the direction in which a stock price is likely to develop in the future. Hence, Candlesticks serve the recognition of a beginning trend. This indicator is advantageous in terms of reliability but also allows the investor to profit from the early identification of a tendency. The many formations carry different messages and have different significance. Use technological indicators in the chart analysis and technical analysis!
Support and Resistance as further indicators
Next to Candlesticks, Support and Resistance are the preferred indicators when using the Chart Analysis. While Candlesticks mainly focus on formations pointing out special trends, Supports and Resistances emphasize on indicating certain rate points. A Support is a rating point at which the falling course of security finally maintained stability in the past. In the event that a stock has gone through a period of the downturn but then reached the Support-Line, it seems possible that this trend is replaced by rising courses in the future.
Resistances, on the other hand, are rate points that courses seem to bounce off after a previous period of increase. By using Supports and Resistances investors can identify the possible ending of a trend and also collect information about the building of a new trend. If the stock price for example crosses the Resistance-Line, it is quite likely that the trend continues moving in that direction. If the stock price “bounces off” this Resistance-Line, investors can expect the end of the uptrend. Support and Resistance are explained in more detail in the video!
Trend Channels and Formations
Along with Supports and Resistances that represent rate points, the Chart Analysis also makes use of so-called Trend Channels. A Trend Channel is basically a range that a rate with a functional trend moves within. In principle, such a channel is made of a lower and upper trend line. If the upper line of the Trend Channel is crossed by the uptrend of a rate, a positive development with rising courses can be expected. If a downtrend causes the course to move below the lower trend line, this may indicate the end of an uptrend and a possible trend reversal.
Supports, Resistances, Trend Channels, and Formations play an important role in the recognition of trends when applying the Chart Method. The significance of Formations was explained in the beginning in connection with Candlesticks. Next to Candlesticks, there is a considerable amount of further Formations that indicate future course developments. One of the popular Formations is the Shoulder-Head-Shoulder-Formation that is named after the similar-looking course development on the chart (like the silhouette of a human shoulder, over the head, and down to the other shoulder).