Definition of Trend Analysis
The trend is the direction of the market, ETF or stock we are watching. There is a famous saying in the stock market that says “the trend is our friend”, referring to the fact that you have to trade in favour of the trend, which you have to determine in order to make a good decision. The trend can be bullish, bearish or sideways (there is no trend in the latter). It is always best to choose an asset with a clear trend, discarding the sideways one.
Examples of Trend Analysis
Prices do not move in a straight line, but in a zigzagging fashion. That is why one way to determine the trend is by joining the high and low points, which are called trend lines. We show some chart examples with the TradingView tool:
A succession of falling prices.
A succession of rising prices.
Undefined, the high and low points have a ceiling and a floor. It is usually in the shape of a rectangle.
Time series in Trend Analysis
Generally, we usually look at the main trend of the asset in monthly, weekly or daily timeframes. But within these there are secondary trends, by the simple zigzagging of prices, so within a main uptrend, there can be a micro downtrend. It depends on what you want to use according to the time frame you are working with, that is to say that in practice the analysis you make of the trends will correspond to the time frame in which you are investing. These micro trends or secondary trends can be triggered by news or general market conditions or an economic event.
Analyse the Trend of the lines
With respect to trend lines, it is important to emphasise that the first two points (either highs or lows) allow a line to be drawn, but a third is required for the line, and therefore the trend, to be confirmed.
Another way to see the trend is with a moving average, it is an indicator that we will see later but it is useful to know the trend. If the slope of the moving average is upwards, the trend is upwards, if the slope is downwards, the trend is downwards, and if the moving average is flat it is sideways, i.e. undefined or without trend.