InvestorQ : I hear the use of the word Trend quite often in technical analysts. What exactly is meant by trend?
Mahil Khan made post

I hear the use of the word Trend quite often in technical analysts. What exactly is meant by trend?

Answer
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Jignesh Gupta answered.
1 year ago


The interpretation of the word Trend in technicals is approximately the same as how we use the word Trend in regular parlance. Trend is the direction that prices are moving in, based on where they have been in the past. Remember, when it comes to technicals we are largely relying on past trends to extrapolate the future trends and take investment decisions accordingly. The most important thing about trends in technicals is that you need to understand highs and lows to identify the trend. For example, Trends are made up of peaks and troughs over a period of time. It is the direction of those peaks and troughs that constitute a market’s trend. Whether those peaks and troughs are moving up, down, or sideways indicate the direction of the trend.

Normally, when you look at any technical trend chart, you will find a connecting line drawn through the higher tops or lower tops and also lower tops and lower bottoms. Such trends are examples of the stock picking up momentum or losing momentum and that is captured by the underlying trend of the stock. That is what trends capture and they are useful in creating an overarching theme within which to conduct these trades. For example, if the overall trend is up and the market is volatile, then you can use every dip to buy in the stock (buy on dips approach). This works when you want to put short trades without violating the longer term trend.