Trading Systems and Methods, 6th Edition

CHAPTER 5Event-Driven Trends

Trends are sustained moves in one direction. In the previous chapters, an upward trend was identified by drawing an upward angling line under the lows of a rising price formation. Time is an important factor. The price for each week, each day, or each bar is plotted to the right of the last price. Like the ticking of a clock, prices must continue to move. If they stop, the trend is over. But there are methods of recognizing the trend that ignore time. This chapter will look at those methods.

A price trend can be thought of as an accumulation of reactions to news and economic reports – that is, a series of large and small jumps in price. In between, traders anticipate that the trend direction will continue. For some systems, it is only when the accumulation of positive or negative news drives prices to new highs or lows that is important. Anything in between is ignored. These methods include the breakout, point-and-future, and swing trading. The shorter the period of observation, the more sensitive the system and the more frequent the trades.

There is no math required, simply the idea that, if prices moved to a new high or new low, then something important has happened. This approach appeals to our common sense and has proved to be a successful strategy. As you progress through this book and become familiar with more complex and mathematically intricate techniques, continually ask yourself to what degree the newer methods have improved on the older, ...