What is trend analysis?

Technical and chart analysis would be nothing without trend analysis. It is by identifying the most pronounced market trends and anticipating future trends that it is possible to implement coherent and therefore profitable investment strategies in stock market speculation. But how do you do this trend analysis? To find out, discover our complete explanations on this subject as well as the list of the best trend indicators.  

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What is trend analysis?

How to carry out a trend analysis?

There are many things that can be learned from technical analysis, but there is one kind that is particularly interesting for determining strategic entry and exit points in the markets: trends.

To analyse these trends, there are several methods, but all of them use charts and specific indicators.

 

Technical trend indicators :

A list of elements used to analyse securities and their evolution on the stock market is called a trend indicator. To obtain this indicator, a mathematical formula must be used that takes into account, for a given period, both the price and the volume of trading of an asset. The result is used to identify the market situation and therefore to make profits.

The main trend indicators measure both the speed and the quality of the trend under study in order to determine its strength. From this analysis, we can then deduce :

  • Excessive upside and downside situations caused by overselling or overbought stocks.
  • The strength or weakness of the trend using divergences.
  • The general upward or downward market trend.

However, there are limits to the use of these indicators, which can sometimes give contradictory signals. It is therefore important to choose your indicator carefully, depending on whether the market is moving in a specific direction or not. A distinction is therefore made between trend-following indicators and oscillators.

  • Trend-following indicators are primarily used in a market that already has a clear direction.
  • Oscillators are best used to determine market turning points.

 

Trend monitoring indicators :

Trend-following indicators therefore allow for an estimation of the strength of a trend when the market is following a real direction.

Among the most relevant trend monitoring indicators are the following. Some of these indicators will be explained in more detail in a dedicated article.

 

Oscillators :

Oscillators are also used in trend analysis, but this time they are used outside of an obvious market direction. There are several types of oscillators using different methods including :

  • The Relative Strength Index (RSI) which measures the difference between upward and downward trends.
  • The stochastic oscillator which determines the overbought or oversold elements of a given asset.
  • The Williams %R which measures the velocity of a trend and identifies turning points.
  • Momentum and ROC which measures the acceleration and deceleration of a trend.
  • The CCI or Commodity Channel Index which is used in the commodity market.

Frequently Asked Questions

How do you go about doing a trend analysis?

A trend analysis is done by first collecting data at a given point in time. Over a longer period of time, all changes in this data must be taken into account. Trend analysis is therefore done through both chart and technical analysis and fundamental analysis in order to obtain more convincing signals taking into account both technical movements and news.

What is the most popular trend indicator?

One of the most used and popular technical indicators for tracking and detecting a trend is the moving average indicator. These moving averages represent an average that is established over a sliding time interval. Thus, each day, the oldest value, which is usually chosen at the close, that makes up the average, is replaced by the value of the new session.

What is the difference between technical and fundamental analysis?

The two most common types of analysis used to detect trends are technical analysis and fundamental analysis. Technical analysis is based solely on the study of stock market charts and associated technical indicators, whereas fundamental analysis is based on the study of news and events likely to have an influence on the price of a security, such as economic or political publications or communications about events.

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