Trendiness

Now if you look at those three charts, for example, you will see why the Random Walk Theory is really disproved in practice, and why traders have no fear that their analytical basis is unsound. The daily chart looks somewhat random, as sometimes happens when there is no real driving force moving the share prices – it’s generally trading sideways. But as soon as you open your eyes to the longer range charts, there can be no doubt that trends exist and therefore can be followed, if that is the trading method that you choose. No-one can doubt that the charts do not show a random walk, but exhibit a definite tendency in one direction or another.

These charts show clear directions that the prices are going in for periods of time. They are easy to see in this case, and you would not have a problem if someone told you to describe the direction of the trends. Price charts are not always so simple to interpret, and of course prices do not trend all the time, but sometimes wander around, like the daily chart shows.

Trends are a topic that deserves a detailed discussion, and they are the subject of the next module. The module goes into how to find and recognize them, as well as what you can do with them.

After the trend module, we’ll be looking at patterns on charts and how to recognize them. This is another way of using charts to determine which way to trade. The 4th module will go into the ‘shapes’ that you can look for in the price curve, and what they mean. Patterns can be recognized on daily, weekly or monthly charts, as I keep emphasizing – technical analysis is scalable.

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