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Trend Trading Set-Ups: Entering and Exiting Trends for Maximum Profit by Alan Farley, L.A. Little

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PART II

Reductionism is a simple word. It was born in eighteenth-century philosophical thought and introduced to the world through the writings of David Hume. It can be most elegantly thought of as the process of reducing the whole into its component parts—of moving from the complex to the simple. There are few systems more complex than the stock market with all the various avenues that one can approach it from. To reduce the market to just its core components might seem like an impossible task, yet the first three chapters reflect such reductionism.

In an unfettered marketplace, supply and demand are the simplest parts, and the construction and tracking of qualified trends allows one to measure both the direction of and enthusiasm in a stock. That enthusiasm or lack thereof is evident and available to all who care to look. It is expressed across all freely traded instruments and is best studied by artificially segmenting and examining the data across multiple and relative consistent sized time frames. As long as prices are associated with volume and time, a trail of evidence is left for the technician to work with.

Carrying the idea a bit further, with trend there are areas of conflict where both sides (buyers and sellers) find great significance. Those price points are typically found near the highs and lows of recent pricing activity, but not always. They denote significance, and as such, they reflect another source of knowledge regarding supply and demand. In the simple yet ...

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