How to identify trends in a stock market graphically
identify the trend up and down with max min price close

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In this tutorial, you will learn how to identify trends in a stock market graphically.

The market is:

In an upward trend if it has drawn a sequence of increasing highs and lows. It is the buyers who have control of the market and, to provide a downward reversal signal, prices must draw a maximum and a minimum lower than the previous peak and minimum.

In a downward trend if it has drawn a sequence of maximums and decreasing minima. Therefore, it is the sellers who have control of the market and, to be able to provide a signal of upward reversal, prices must draw a maximum and a minimum higher than the previous peak and minimum.

In a sideways trend, if you have designed a series of highs and lows that substantially coincide with prices moving within a band or channel.

At a graphical level, it should be noted that:

An upward trend is identified by combining two or more growing minima, through a line called trendline.

A downward trend is identified by a trendline combining two or more downward highs.

A lateral trend is characterized by two horizontal trendlines: one that joins the maxima that are substantially on the same levels and one that joins the minima that are on the same levels.

How to identify trends in a stock market graphically with the Trendlines

Trendlines, therefore, are straight lines that combine:

Two or more minimums.

Two or more maximums.

Two points are therefore necessary to draw a trendline, but to confirm its validity and importance, the trendline itself must be tested a third time.

The importance of a trendline is directly proportional to the increase in time amplitude (on which it is designed) and the number of times prices have tested it.

 

Trendlines perform two fundamental functions:

They determine market direction.

It has already been pointed out that the trend (upward or downward) followed by the market is photographed by the tendency of the main trendline that, in an upward trend, combines the rising lows designed by prices while in a downward trend combines the decreasing highs designed by prices.

As long as prices remain above the upward trendline combining the growing lows designed by the market, the trend is still upward.

As long as prices remain below the downward trendline combining the downward highs designed by the market, the trend is still downward.

 

Trendline breakout

Breaking a trendline is, therefore, one of the elements that can be used to highlight a reversal of the trend.

 

They constitute essential levels of support and resistance. In this regard, we can define as support a level at which prices can stop their decline and begin to recover. It is an area in which there is, therefore, an increase in upward pressure and a reduction in downward pressure.

In this way, the market draws a minimum, which must be used to carry out appropriate graphical analyses.

To confirm an upward trend, this minimum will have to be higher than the previous lows. The trendline that combines these increasing minima, therefore, becomes dynamic support, as it inevitably assumes higher values ever.

 

In a downward trend, this minimum will have to be decreasing compared to the previous minima.

In a lateral trend, this minimum must be found on values ​ ​ substantially coincident with the previous minima.

 

market stock trend trendline breakout setup trading system

 

The trendline that joins these minima is horizontal and therefore constitutes static support, as its value does not change with time.

 

Similarly, we can define resistance as a level at which prices stop rising and are corrected.

This is an area where there is an increase in downward pressure and a reduction in upward pressure.

 

In this way, the market draws a minimum, which must be used to carry out appropriate graphical analyses.

In a lateral trend, this maximum must be on values ​ ​ substantially coinciding with the previous peaks.

 

The trendline that joins these maxima is horizontal and therefore constitutes a static resistance, as its value does not change with time.

To confirm a downward trend, this maximum will have to be decreasing compared to the previous ones.

 

The trendline that combines these decreasing maxima, therefore, becomes a dynamic resistance, as it inevitably assumes lower and lower values.

In an upward trend, this peak will have to be higher than the previous highs.

 

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My name is Luca. I grew up in Italy. I have a degree in law and I’m an independent trader since 2007. I’m a systematic trader and sometimes, I trade using options strategies with US ETFs and Stocks.I have built hundreds of automated trading systems and indicators for TradeStation, MultiCharts and MetaTrader.I started this blog in 2017 to share what I learned in the financial market.

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