Learning Corner (Trend Lines)

Dear Investors

In last learning corner we have seen some basic technical terms

And tools

There is one thing which is very commonly written and

Spoken while indicating market movements over a period

Of time and prices, that is……

“The trend is up or down or side ways ….”.What does this mean to a

Common investor? …..

TREND

Trend denotes the direction and speed in which prices are moving, it can

 Predict the next move of the prices over a period of time.

This is presented by joining the prices(upper or lower) by lines, called

As ‘Trend Line’

HOW TO DRAW

Trend line is drawn by joining either higher pivot points and

Under pivot points

SIGNIFICANCE

This will indicate the direction in which prices are moving

Trend lines can help in deciding support and resistance levels of prices

WhIle doing technical analysis it is assumed that prices do trend.

Trend lines help in deciding and confirming the price movement.

After connecting two or more price points by a straight line it extends

In ‘Future’ to act as a line of support or resistance.

TREND PATTERNS

UP TREND LINE( Upward Trend)

 An up trend line is having a positive up ward slope formed by joining two or

More lower points. In this case the second low is higher than the first low so as to

Have a positive slope.

Now the up trend line drawn acts like a support for the price and indicate that

There are more buyers than sellers; demand is more than supply leading to rise

In prices.

As long as prices remain above trend line the up trend is considered to be strong.

A break below the trend line indicates that the supply is more than demand and may

Indicate that the up trend is either broken or halted.

DOWN TREND LINE (Downward Trend)

A down trend line will have a ‘Negative Slope’. It is formed

By connecting two or more ‘High Points’

 

The second high will be lower than the first high and so on to

Have a negative slope. This indicates the level of resistance and

Gives idea regarding ‘Net supply’ in market. As long as prices

Remain below the trend line ‘down trend is strong’.

Breaking of prices above the trend line will indicate a possibility

Of change in trend and fall in supply of equities.

 

SIDE WAYS TREND LINE ( Consolidation or Range)

A SIDE WAYS trend line is formed by joining Tops and Bottoms

And visually gives a horizontal line making neither higher tops nor

Higher bottoms or lower tops and lower bottoms. This indicates that

The supply demand is to some extent balanced. This can be called as

‘Consolidation Pattern’ or ranged pattern’ Horizontal chamber’, all

This indicate that prices are moving in a tight range and may break

On either side of the line.

From above presentation even non technical investors can draw

Primary visual inference from the ‘Graphic Presentaion’ of

Prices . It can give some idea regarding where the prices are

Likely to move.Trend lines for Index and or Individual stocks

Can help in deciding ‘Resistanc and Support’ levels.

I will suggest investors to give some time to look into important

Technical tools when markets are not governed by ‘Fundamentals’

Thanks

Dr. Vasant Bele