The Dow's idea of trend lines can be shown on graphs or cahrts of stock prices by drawing straightline connecting the troughs. As long as the stock prices are above the upward sloping trendline of troughs, the price trend is up. whenever price move downward piercing the upward sloping trendline, the downward trendline connecting tyhe peaks could be drawn signalling a downward trend.
To draw a trend line at least two successive points are required. Two increasing troughs or two decreasing peaks. A third point above the uptrend line or below the downtrend line confirms the trend.
In technical analysis only confirmed trends have to be used for trading.
Wednesday, December 19, 2007
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