A trend is a time measurement of the direction in price levels covering different time span. There are many trends, but the three that are most widely followed are:
It is between 9 months and 2 years and is a reflection of investor's attitude towards unfolding fundamentals in the business cycle. When the business cycle extended statistically from trough to trough, it is approximately 3-6 years. So it follows that rising and falling primary trends (BULL and BEAR markets) lasts for 1 to 2 years. Since building up takes longer than tearing down, bull markets generally last longer than bear markets.
The primary trend cycle is operative for bonds, equities and commodities. Primary trends also apply to currencies, but since currencies reflect investor's attitudes toward interrelationships among two different economies, the information is calculated differently.
Anyone who looks at a price chart will notice that prices do not move in a straight line. Primary upswings are often interrupted by several price fluctuations along the way. These countercyclical trends within the confines of a primary bull market are known as intermediate price movements. These price movements can last from 6 weeks to as long as 9 months. These trends sometimes last even longer, but rarely shorter.
It’s important for traders to understand the direction and maturity of a primary trend. Analysis of an intermediate trend is also helpful for improving success rates in trading, as well as for determining when the primary movement may have run its course.
Short-term trends typically last from 2 to 4 weeks, and are occasionally shorter or sometimes longer. These short trends interrupt the course of the intermediate cycle, just as the intermediate-term trend interrupts primary price movements. Short-term trends are shown in the market cycle model as a dotted line figures, and they are usually influenced by random news events. They are much more difficult to identify then their intermediate or primary counterparts.
Technical analysis is built on the assumption that prices trend. Trend lines are an important tool in technical analysis for identifying and confirming a trend. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. Many of the principles applicable to support and resistance levels can also be applied to trend lines.
It takes two or more points to draw a trend line. The more points used to draw the trend line, the more validity attached to the support or resistance level represented by the trend line. It can sometimes be difficult to find more than 2 points from which to construct a trend line. Even though trend lines are an important component of technical analysis, it is not always possible to draw trend lines on every price chart. Sometimes the lows or highs are simply too different. The general rule in technical analysis is that it takes two points to draw a trend line and the third point confirms the validity.
Ascending trend line:
An ascending trend line has a positive slope and is formed by connecting two of more low points. The second low point must be higher than the first low point for the line to have a positive slope. Ascending trend lines act as supports and indicate that net-demand (demand less supply) is increasing even as the price rises. A rising price combined with increasing demand is very bullish and shows a strong determination from the buyers. As long as prices remain above the trend line, the upside trend is considered solid and intact. A break below the upside trend line indicates that net-demand has weakened and a change in trend.
Descending trend line:
A descending trend line has a negative slope and is formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Downside trend lines act as resistance and indicate that net-supply (supply less demand) is increasing even as the price declines. A declining price combined with increasing supply is very bearish and shows a strong resolve from the sellers. As long as prices remain below the downside trend line, the downtrend is considered solid and intact. A break above the downside trend line indicates that net-supply is decreasing and a change of trend could be imminent.