How Technical Analysis Investors Use Trends

Charles D. Kirkpatrick II, CMT, and Julie R. Dahlquist, Ph.D., CMT

Technical analysis is based on one major assumption—trend. Markets trend. Traders and investors hope to buy a security at the beginning of an uptrend at a low price, ride the trend, and sell the security when the trend ends at a high price. Although this strategy sounds very simple, implementing it is exceedingly complex.

For example, what length trend are we discussing? The trend in stock prices since the Great Depression? The trend in gold prices since 1980? The trend in the Dow Jones Industrial Average (DJIA) in the past year? Or, the trend in Merck stock during the past week? Trends exist in all lengths, from long-term trends that ...