|
The market has fallen (figure 22) and in the last 2 bars we can see that the volume (trading activity) has increased significantly. There is clearly buying resistance (support) to the selling pressure. The next bar (figure 23) is an up bar 47 on lower volume, suggesting that the buying support has absorbed the selling enough to force the prices back up a little. The lower volume on this bar also suggests that the sellers have run out of ammunition to resist this rise. Figure 23 48 The market rises from here and then starts to fall again (figure 24), but again there is a clear indication of support; a bullish reversal bar with increased volume (red bar, figure 24). Figure 24 49 The market subsequently rises over 100 points (figure 25). Figure 25 50 Chapter 9: Trends An up trend is defined as rising highs and rising lows: Figure 26 A downtrend is defined as falling highs and falling lows: Figure 27 51 In the example below, figure 28, the market is in a clearly defined downtrend. Figure 28 A trend reversal has to be accompanied by a breakdown of the existing trend. So if an up trending market has a series of higher highs and lows, at some point a lower low is made and the up trend is broken. In a down trending market at some point a higher high is made and the downtrend is broken. 52 As we can see in figure 29, the downtrend is clearly broken later in the day. Figure 29 53 The High/Low Trend Following Strategy In order to be able to trade with the trend, we need to be able to identify the trend. We could use an objective or a subjective method to identify the trend. A subjective method allows for interpretation and flexibility, but is subject to our indecisiveness and hesitation. An objective method allows for no such flexibility, so it won't always be right, but being rules based and rigid it is open to testing and minimizes human error. |
|
