Direction of Trends – Uptrend, Downtrend & Sideways!

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This blog was first appeared in 2007 in a popular trading forum. 

How to determine the direction of the Trend?

Look at your right hand with the palm facing you.First we have the little finger.The Ring Finger takes out the high of the little finger and therefore makes a higher high and low as compared to the little finger.The middle finger makes a higher high and higher low as compared to the ring finger.We have therefore an uptrend.The index finger makes a lower high and a lower low as compared to the middle finger.The thumb makes a lower high and low as compared to the index finger.We have therefore a downtrend.

Just as trend can be classified according to the direction,so too can we categorise trends into 3 categories

MAJOR ,INTERMEDIATE and NEAR TERM TRENDS.

Simply put,major trends last for greater than 6 months.Intermediate trends last between 3 weeks to 6 months.Near term trends last from a few days to 3weeks.

From a chart perspective, the major trend is seen by looking at the monthly charts.The intermediate trend from the weekly charts,and the near term trend from the daily charts.

What is seen as a downtrend on the daily charts may be nothing but a pullback on the weekly charts,and is not even evident on the monthly charts.What is seen as a downtrend on the weekly charts and a catastrophic crash on the daily may be nothing but a monthly pullback.

It is important as traders to know these different time frames and trade accordingly.The practical aspects of profiting from this knowledge,we can come to later.

For now,we don't know much......but a step at a time for now.We have our charts.All we know is that in any chart of any time frame,we can have only 3 possibilities in direction,and only 3 possibilities in categorisation.The eye can only see what the brain knows........these early days are to be spent in teaching the brain so that the eye sees the pattern from a mile.Pour over your charts and train yourself in detecting which trend the stock is in currently.It is a first step but an important first step.

About  Author

Dr. SREEKUMAR RAVINDRAN

Founder and Chief Managing Director at Tradonomix

Dr. Sreekumar Ravindran, known as Saint in trading forums such as Trader Saint Forum & Traderji, is the visionary and mind behind Tradonomix. He is a passionate trader himself and has spent over 15 years in researching and accumulating knowledge of trading and applying the same in real-time.

Dr. Sreekumar strongly believes that trading is a learnt skill and that awareness needs to be created for trading as a profession for the common man. Tradonomix is one of his first steps towards this belief, from where he intends to take Tradonomix to an advanced technology-driven social platform for learning, and achieving financial independence.