Trends Flashcards
Why are Trends relevant?
Trends are relevant because history repeats itself and patterns tend to continue
The assumptions:
•The Market Discounts Everything
•Price Moves in Trends
•History Tends To Repeat Itself
What types of Trends are there?
- Uptrends
- Downtrends
- Sidetrends
What is a channel?
a Channel is when a stock moves within 2 trendlines
those 2 trendlines are called “Support” for the lower one and “Resistance” for the upper one
They’re called that because they tend to determine how high a stock can go or how far it can fall before it reaches a turning point and reverses back to the channel.
Why do Support and Resistance lines exist?
Because people follow the pattern in self-fullfiling prophecy.
Lots of people put their orders to sell/buy in the support/resistance line, thus causing the stock to reverse whenever it reaches that point.
If a support/resistance line is broken, it tends to become it’s inverse, if a support trendline is broken, it becomes the new resistance and vice versa.
What are the trend lengths?
There are 3 different trend lengths:
•Long-term trend
•Medium-term trend
•Short-term trend
Within a long-term trend you have medium term trends that can be of different or
same direction. Furthermore, within the medium term trend you can have short-term
trends that are of different or same direction.
Why are round numbers relevant to support/resistance channels?
People are psychologically inclined to put their orders at round numbers, thus, support/resistance lines tend to form in the roundest number available within a reasonable range.
It is imperative that you take this into consideration and never put your orders in a round number, always go a little bit lower or higher in the decimals.
