Thursday, May 26, 2011

Identify your Trend

The technical Trader should look at a chart and almosty instantly decide on the trend visible. This should become second nature. Such 'second nature' analysis is possible when the Trader is aware of the rules used to identify the trend. These rules must be used consistently, such that repeatition makes the trend process perfect.

Any number of ways can be used for trend. All of the methods eventually lead to the same goal. But, the trader should select one method and use it again and again. Be consistent. A simple trend method is to look at higher highs and higher lows which make an uptrend, and, lower highs and lower lows which make a downtrend. A second method is to use three moving averages - 200, 50 and 20. When price is above the 200 MA, the primary trend is up. When price is above 50 MA the intermediate trend is up. When price is above 20 MA, the minor trend is up. The reverse is applicable for down trend. Yet another way is to use the RSI for trend identification. RSI above 60 is strong uptrend, below 40 is downtrend, inbetween is a continuation of the previous trend. The CCI can also be use in a similar fashion.

My suggestion is: decide which method is comfortable for you, and stick to it. So, next time you open a chart, ask yourself: what is the trend? And, answer this question with the same methods of analysis.

2 comments:

Akash said...

Hi,Sir My Query is What is RSi ??/

Akash said...

Hi, What is a Rsi ???