The entire psychology of ‘trend’ analysis (vs. short-term trading or long-term valuations) rests on timeless precepts. That leaves classical patterns and moving averages still useful after so many ‘new’ or ‘ground-breaking’ analysis developments.
That is because price trends are characterized by a natural progression that is indeed timeless. Market price activity tends to proceed through phases of directional swings followed by taking a rest. The degree of that directional volatility and length of the rest (‘consolidation’) periods can vary widely. However, within the overall trend psychology, the attempted reversal patterns which inevitably form during rest phases are a key to the health of any trend.
Does a ‘top’ after a bull run succeed in reversing the trend, or is it quickly overrun? The failure of a top to perform is a sign the bulls still dominate the market. The inverse is true in a bear trend. And that pattern ‘negation’ may prove to be a good timing indication as well.
Source: michael kooiman
Similarly any drop after a rally is also subject to consideration of whether it violates enough up trend support to trigger yet more selling. In those cases the trend or channel line support (a hybrid form of patterns) is key.
And those reactions can also be assessed with well-researched moving average projections. Many criticize moving averages as lagging indications. Of course they are, reflecting a ‘smoothed’ picture of the price activity. They are nonetheless useful for spotting tests of trailing momentum.
New forms of analysis are often worth a look. Yet for those who have mastered the ‘craft’ of properly interpreting the classics, they will always be important indications. They are, after all, based on intrinsic aspects of price trend evolution.
Lead Analyst and President of Rohr International, Inc. He is an international equity index, interest rate and foreign exchange trend advisor. His forte is ‘macro-technical’ analysis of how fundamental influences blend with technical aspects to drive trend psychology. Clients include international banks, hedge funds, other portfolio managers and individual traders.