Trends are sustained price moves in one direction. In the previous chapter, an upwards trend was identified by drawing an upwards angling line under the lows of a rising price formation. But that involves a degree of interpretation. There are many other methods for recognizing the trend that are fully systematic. Of these there are two main categories, those that are sensitive to the way price moves over time, and others that ignore time and only concentrate on price level. This chapter will look at the second group.
A price trend can be thought of as an accumulation of small and large reactions to news and events. Even in a strong upwards trend, not all of the reactions are positive, but the net effect is a sustained upwards move. Smaller events that cause price movement are the result of frequent, scheduled economic reports, earnings reports by NYSE listed companies, upgrades and downgrades announced by financial institutions, and countless other pieces of information available on the various news media. Larger price moves come in reaction to natural disasters, political coups, unexpected election results, extreme action by a Central Bank, a major production interruption, terrorism, and unexpected corporate or political scandals of far-reaching effect. Each year there seem to be more events that lead to uncertainty and reduced investor confidence.
The impact of these material events can be long-term, temporary, or even structural, but they always ...