May 8, 2008
Trends are often what we look for when finding a stock to trade in. For those who depend on technical analysis solely for their trading decisions, it is their life-blood. Knowing where big money is putting there money in, is often found by spotting the trend early and riding it to maturity. So what constitutes a trend? By definition it is a series of “higher-highs” and “higher-lows”. Between the two it is imperative that the trend continues to make higher-lows at all costs. A trend can continue if, from time-to-time, it makes a lower-high. However, once the stock fails to make a higher-low, the trend is considered “dead”. That is only one side of the coin, trends exist to the downside also (obviously) and downward trend is defined by a series of “lower-highs” and “lower-lows”. The same rule applies, in that once the stock fails to make a lower-high, and instead makes a higher-low, then the trend is considered over, and the short position will need to be covered. But for the purposes of this article, we will only focus on the upward trend.
Let’s look at how to trade the trend…
This is the chart of Agrium Inc. (AGU) one of the very popular agricultural stocks, but in August of 2007, it had been trading in a sideways for over four months between $36 and $46 per share.