Classic Techniques  |  APR 2000

Picking Out Your Trading Trend by Martin J.Pring

Pick Out Your Trading Trend by Martin J.Pring There are three kinds of trends: short, intermediate, and long term. This veteran trader and analyst explains how you can spot them and use them. Technical analysis assumes that all the knowledge, hopes, and fears of both active and inactive market participants are reflected in one thing: the price. Even if I am in a cash position, I am still influencing the price because it would be higher if my cash were invested. Thus, prices are determined by psychology. This would just be an interesting observation, except that psychology moves in trends,and so do prices. Most of the technical tools we use are aimed at identifying trend reversals at an early stage. We ride on trends until the weight of the evidence shows or proves that the trend has reversed — in this case, the number of reliable technical indicators all pointing in the same direction. Hence, the greater the number of indicators signaling a reversal, the greater the probability that a reversal will take place. It is important to remember that technical analysis only deals in probabilities, never certainties. Unfortunately, there is no known method of forecasting the duration and magnitude of a trend with any degree of consistency. Identifying reversals is hard enough.

by Martin J. Pring