CHARTS, TRENDS, AND PATTERNS - Section 2 - Chapter 5 Part I - Trends Basics

1. CMT LEVEL - I
Lecture - 10
Trends Basics

2. Learning Objectives
 Trend Importance
 Types of trends
- Time Based Trend
- Price Based Trend
 Trend Identification
CMT LEVEL - I

3. Trend—The Key to Profits
•Determine, with minimum risk of error, when a
trend has begun, at its earliest time and price.
•Select and enter a position in the trend that is
appropriate to the existing trend, regardless of
direction (that is, trade with the trend—long in
upward trends and short or in cash in downward
trends)
•Close those positions when the trend is ending.

4. What is Trend Analysis?
Trend analysis is a technique used in technical
analysis that attempts to predict the future stock
price movements based on recently observed
trend data.

5. How Does Investor Psychology Impact Trends?
• Power of the buyers or sellers
• Aggressiveness or anxiousness of buyers and
sellers
• Emotions of fear or greed propelling their
action
• Broad expectations

6. Type of Trend
Time Based/ Fractal
(Primary ,Secondary & Minor Trend)
Price
Based/Directional
(Uptrend , Down Trend , Sideways
Trend)

7. Time Based Trends (Dow Theory)
Trends are fractal (According to Dow Theory)
- Major Trend –above one year
- Intermediate Trend -3 weeks to many
months
- Minor term Trend – below 3 weeks

8. Price Based/Directional Trends
Upwards Trend Down Trend
Sideways Trend /
Range Bound

9. Uptrend
•An uptrend describes the price movement of a
financial asset when the overall direction is
upward.
•In an uptrend, each successive Top and Bottom is
higher than the ones found earlier in the trend.
• Investor Takes Action in Uptrend – Buy on Dips
or Successive Bottoms

10. Uptrend
For example : the high at point 4
is above the high at point 2 and
the low at point 5 is above the
low at point 3.
•The uptrend is broken if the next
low on the chart falls below
point 5.
•The opposite of an uptrend in a
downtrend.

11. Uptrend

12. Downtrend
•A downtrend occurs when the price of an asset
moves lower over a period of time.
•While the price may move intermittently higher
or lower, downtrends are characterized by lower
tops and lower bottoms over time.
• Investor Takes Action in Downtrend – Sell on Rise
or Successive Tops

13. Downtrend
• Notice how each successive peak
and trough is lower than the
previous one.
• For example, the low at Point 3
is lower than the low at Point 1.
The downtrend will be deemed
broken once the price closes
above the high at Point 4.

14. Downtrend

15. • A sideways market or sideways drift occurs
where the price of a security trades within a
range without forming any distinct trends.
• Price action oscillates in a horizontal range
or channel, with neither the bulls or bears
taking control of prices.
Sideways Trend/ Range Bound

16. • A sideways market or sideways drift occurs
where the price of a security trades within a
range without forming any distinct trends.
• Price action oscillates in a horizontal range
or channel, with neither the bulls or bears
taking control of prices.
Sideways Trend/ Range Bound

17. Sideways Trend