#PriceTrendAnalysis

Technical Analysis for Option Trading

Trends analysis with price

Chapter 3

Trends Analysis with Price 

Trend Analysis using Price

Trend analysis is an approach to forecast the underlying, i.e.  Nifty/Bank Nifty/F&O stocks, prices and the future trajectory. The analysis involves the study of historical price data points and volume to forecast or gauge the sentiment/ market interest in the underlying. It is a technique, which forms a pivotal part of technical analysis, broken down into 3 time horizons, namely, long term, intermediate term and short term.

The three trends which are used to map the price action are upward, downward and sideways.

How to characterise these trends?

Upward:  As discussed in Dow theory, upward trend is when historical prices move along a direction forming higher tops and higher bottoms. This is also called a bull trend, if trend persists for medium to long term.

Downward: Contrary to the upward trend, historical prices, when they move along a direction, forming lower tops and lower bottoms, called a bear trend in the intermediate to long term.

Sideways: It is also referred to as horizontal trend, occurs when no decisive direction emanates from the recent historical price action. It also, implies that the underlying price or other examined metrics and variables are stagnant or range -bound.