Page 206 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 10: Technical Analysis

10.6.3 Types of Trend Notes

There are three types of trend:
 Uptrends

 Downtrends
 Sideways/Horizontal Trends
As the names imply, when each successive peak and trough is higher, it’s referred to as an
upward trend. If the peaks and troughs are getting lower, it’s a downtrend. When there is little
movement up or down in the peaks and troughs, it’s a sideways or horizontal trend. If you want
to get really technical, you might even say that a sideways trend is actually not a trend on its
own, but a lack of a well-defined trend in either direction. In any case, the market can really only
trend in these three ways: up, down or nowhere.

10.6.4 Trend Lengths

Along with these three trend directions, there are three trend classifications. A trend of any
direction can be classified as a long-term trend, intermediate trend or a short-term trend. In
terms of the stock market, a major trend is generally categorized as one lasting longer than a
year. An intermediate trend is considered to last between one and three months and a near-term
trend is anything less than a month. A long-term trend is composed of several intermediate
trends, which often move against the direction of the major trend. If the major trend is upward
and there is a downward correction in price movement followed by a continuation of the
uptrend, the correction is considered to be an intermediate trend. The short-term trends are
components of both major and intermediate trends. Take a look a Figure 10.2 to get a sense of
how these three trend lengths might look.

Figure 10.2: Trend Length

!
Caution When analyzing trends, it is important that the chart is constructed to best reflect
the type of trend being analyzed.
To help identify long-term trends, weekly charts or daily charts spanning a five-year period are
used by chartists to get a better idea of the long-term trend. Daily data charts are best used when
analyzing both intermediate and short-term trends. It is also important to remember that the

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