Trend chart

Trend chart - The trend graph presents the data set in the form of a trend line. So that we can present a change in specific period of time, we need as much data as possible. The more data, the better interpretation we can make. It is intended to present the obtained information in a transparent manner and help in its interpretation. Thanks to the trend line, we can read the direction of changes in the examined process. Most often it is measured in relation to the set target. Bringing the trend line closer to the target level is our success. It means that all actions taken influence the benefit of the examined aspect. The greater the distance of the trend line from the set target, the less chance of success in its implementation. Correctly presented and interpreted data will help us make the right decisions and avoid mistakes that we could make without creating a trend chart.

Trend analysis

Trend analysis allows to determine the behavior of the trend line in a given period of time in relation to a predetermined target. Based on trend formation, we determine all occurring deviations. Any changes observed on the chart indicate increases or decreases that have occurred. Considering all factors that may affect the trend line, we are able to determine its position in the future. For this you need to determine the right formation. There are three main types of trend[1].:

• uptrend- occurs when a rising line is formed as a result of connecting the lower points. Each subsequent bottom is at a higher level than before. The trend line is turned upward and has a rising trend;
• downtrend - occurs when a descending line is formed as a result of a connecting of growth points. Each subsequent rising peak is at a lower level than before. The trend line is facing down and has a downward trend;
• horizontal trend - it is also called lateral trend. It is characterized by the inability to create a decreasing or increasing trend line, because the tested parameters remain at a similar level.

Trend reversal formation

There are three types of trend reversal formation[2].:

• inverted formation of the head and shoulders;
• double peak formation;
• double bottom formation;

These formations relate to long-term formations. The formation of the head and shoulders consists of one highest point, i.e. the head, and two points located on the lower level, i.e. the shoulders. It refers to the upward trend. The most favorable situation for process development and other investments is the highest level of the left arm. The opposite formation is the inverted formation of the head and shoulders, which refers to the downward trend. Its highest points are its arms and its lowest points its head. The higher the level of the left arm, the more favorable the situation for process development. The peak formation is a combination of the two highest points, as a result of which we can present the approaching end of the trend in the near future. The opposite is the bottom formation, which connects the two lowest points indicating the level of change in tendency from decreasing to increasing.

Formation of the continuation of the trend

There are three types of formation of the continuation of the trend[3].:

• Pennant formation;
• Flag formation;
• Wedge formation;

The above-mentioned formations refer to the upward or downward trend. They are very similar to each other, however, they have slight differences. They are usually used in short-term formations. The formation of the flag is usually created in the middle of the examined process. It is presented in the form of two parallel lines directed up or down. They are created by joining each subsequent peaks and bottoms that should intersect at 45 degrees. Through lower turnover it shows the uncertainty of maintaining the trend without major changes. Wedge formation is the most reliable formation of all listed. It is represented by two lines, inclined in the same direction, i.e. up or down. At the end it is characterized by an increase in turnover. The formation of the Pennant is similar to the formation of the flag. However, it has two lines that are sloping opposite to the previous direction of the process being investigated. It is also characterized by a larger decrease in turnover.

Footnotes

1. URL Technical Analysis from A to Z, Behavior of the trend.
2. URL Getting Started in Technical Analysis,Types formation of reversal.
3. URL A Theoretical Foundation for Technical Analysis, Types formation of continuation.

 Trend chart — recommended articles Gravestone doji — Dragonfly Doji — Chande Momentum Oscillator — Symmetrical triangle — Long-legged doji — Tape Reading — Heteroskedasticity — Osma — Doji

References

Author: Marcelina Rusinek