Free markets have a common point: prices are steadily changing. Sometimes they go upwards, sometimes they go downwards. Experts and analysts try to find a rule in these continuous changes. This rule is the trend.
The trend is the general direction of the stock (but it is also applicable for other listed assets, as ETF, funds or bonds, for instance) in a period of time. The investors’ profile and style will guide which time frame is important: for daily traders, they take into account short term trends, while a more traditional investor, who is saving for a long-term goal (studies for his or her children, retirement), the point is the tendency in a wider period.
If we consider a medium or long-term trend, the options are from very bearish to very bullish. In other words, from a strong downwards trend to a strong upwards trend. The middle point is the lateral movements, when the asset has no clear tendency.
In T-Advisor we consider the trend analysis as an important figure to take investment decisions. Our system has established a code with three arrows. Each arrow sums up the trend of the last three weeks. Sometimes, there is a combination of up and down arrows, which help the investor detect a change in the direction and react to the market movement.
To complete the trend analysis, it is necessary to know if it is strong or not to be prevented about how long it will probably last. The word “probably” is quite important. Analysts consider that the market has a cyclical behaviour and it repeats the movements every certain time, but the base is probabilistic: it could happen or not.
The trend strength is the slope of the main trend. In this case, the analysis considers a long-term direction, avoiding taking into account short-term changes. The higher is the number, the strongest is the trend. In T-Advisor, this data completes the analysis of the trend signalled by arrows.