Forum Archive Index - June 2001

[Phaedrus <Phaedrus@techemail.com>]

Hugh,
      Lets discuss trends. So that we are all talking about the same thing, 
let's define them first. A trend is simply the direction of the market, the way 
it is moving. Up, down or sideways.  As we all know, markets do not generally 
move in a straight line, but progress by making a series of zig-zags. It is, 
therefore, the direction of these peaks and troughs that constitute market 
trend. Thus an uptrend is a succession of higher highs and higher lows. A 
downtrend is a succession of lower highs and lower lows. A flat, sideways 
market is usually described as trendless. There are many old sayings like 
"always trade with the trend", "never buck the trend" and "the trend is your 
friend". We are all, therefore, interested in the trend of the market. We want 
to monitor the market action, with the object of participating in uptrends 
whenever possible.
   Monitoring the market for evidence of any trends can be done in many ways. 
You could have all the price data in a spreadsheet, and examine the columns of 
figures for evidence of any sustained trends. Possible, but very difficult. 
Trends are much more evident if the data is presented in the form of a graph. A 
simple visual inspection will reveal them. Graphs also give some idea of the 
rate of change of prices - very difficult to see from a column of figures. 
Graphs make it very easy to see if peaks and troughs are rising or falling, if 
the trend is up or down. Since we are talking here about the mathematical 
relationship between price and time, this could be expressed arithmetically as 
cents/week, % change/month, linear regression slope, graphically, or many other 
ways. I find one picture (graph) to be worth a thousand words (mathematical 
constructs). 
    Trends start, continue for an indeterminate period of time, and end. Some 
trends are sustained for years, but nothing goes on forever, so we need to 
define the point at which we will consider the trend is over. The end of an 
uptrend could be defined as when we get a lower low after a lower high (a new 
downtrend). We could use a very complex mathematical construct such as 
polarized fractal efficiency. We could use a trendline break. I favour 
trendlines because of their simplicity, ease of use, and the fact that they are 
not subjective, and can not be fudged. If you get a sell signal that you do not 
like from a 15 day moving average, no problem, change to a 20 day moving 
average! You can't pull stunts like that with trendlines. 
    These are not tea-leaves, or chicken entrails we are looking at. These are 
the actual price levels that represent the concensus of opinion as to the worth 
of TLS shares at any point in time. Things are only worth what someone else 
will pay for them. The market does not give a toss that some accountant may 
have calculated the "true value" of TLS shares as some other figure. Never 
forget, the market (unlike Hugh and I) is never wrong, and it is bigger than 
both of us.  Ignore its forces at your peril. 
    If you disagree with any of the above principles, statements or 
conclusions, Hugh, I would be very interested indeed to know specifically which 
ones. It is all just simple applied commom sense to me. How you see it as 
snakeoil genuinely perplexes me. 

    Hugh, it is now time for your test, to see if you have been paying 
attention, and have grasped the basic concepts of Trend. Examine the following 
graph of TLS prices, and see if you can answer the following questions :-

1.  Can you see the Uptrend?
2.  Can you see the end of the Uptrend?
3.  Can you see the Trading range?
4.  Can you see the end of the Trading range?
5.  Can you see the Downtrend?
6.  Is the Downtrend over?
7.  Where should Snoopy have sold?

                                    Phaedrus.

PS   Please don't wait. Write your hilarious article on charting now. I have 
surely provided you with enough info.

PPS  You speculate as to the number of people using technical analysis. Hard to 
say. I don't know about Christchurch, but I am told that the Auckland branch of 
STANZ has hundreds of members - they even go to the meetings. What sort of 
following does your lot have?

PPPS  You want a competition predicting future prices? Sorry, don't do that 
stuff. I can't predict anything with any accuracy. My guess would be as good as 
yours. That's why I don't do it.

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