A trend occurs when the price of a stock continues to rise or fall over a period of time. A trend indicator is a calculation that uses statistical methodologies like average and rate of change to help track that movement while defining moments when the trend is either simultaneously reversing or where it may reverse in the future. The objective is to identify a change in the market trend as soon as possible. Trend indicators are used to chart price direction developing in the medium to long-term.
The calculations require that you first establish that a trend, whether it is up or down, actually exists or whether the stock is in range trading. Range trading means that the price of the stock stays within a certain spread of high and low prices during a period of time. When the stock falls below its trading range after several days of trading in that range, it usually means there is momentum building, which will lead to a change.
There are both bull and bear trends. A bull trend occurs when a stock experiences a series of rallies and the high point of each rally exceeds the highest point of the previous rally. It also experiences a decline between rallies, and each decline must end above the lowest point of the previous decline in order for the trend to be considered a bull trend.
A bear trend starts at the end of a bull trend. When a stock’s rally ends with a lower peak and then falls below the previous low, that is considered a bear trend. The end of a bear trend is identical to the start of a bull trend.
Trend indicators do not give explicit trading recommendations like clear buy or sell signals, but their calculations serve as the basis for other indicators.
Disclimer: This website is for informational purposes only and is not intended to provide
specific commercial, financial, investment, accounting, tax, or legal advice.
History
