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This post first appeared in 2007 in a popular trading forum.
Look at your right hand with the palm facing you. First we have the little finger.The ring finger takes out the high of the little finger and therefore makes a higher high and low as compared to the little finger.The middle finger makes a higher high and higher low as compared to the ring finger. We therefore have an uptrend. The index finger makes a lower high and a lower low as compared to the middle finger.The thumb makes a lower high and low as compared to the index finger.We therefore have a downtrend.
Just as trends can be classified according to their directions, they can also be categorised into 3 groups:
Major, Intermediate and Near Term Trends.
Simply put, major trends last for a period greater than 6 months. Intermediate trends last between 3 weeks to 6 months. Near term trends last from a few days to 3 weeks.
From a chart perspective,- the major trend is seen by looking at the monthly charts, the intermediate trend from the weekly charts, and the near term trend from the daily charts.
What is seen as a downtrend on the daily charts may be nothing but a pullback on the weekly charts, and may not even be evident on the monthly charts.What is seen as a downtrend on the weekly charts and a catastrophic crash on the daily charts may be nothing but a monthly pullback.
It is important as traders to know these different time frames and trade accordingly. We can come to the practical aspects of profiting from this knowledge later.
For now, it is important to begin with the mindset that we do not know much- taking one step at a time.We have our charts and all we know is that in any chart of any time frame, we can only have 3 possibilities in terms of direction and only 3 possibilities in terms of categorisation. The eye can only see what the brain knows – thus, these early days are to be spent teaching the brain, so that the eye can see the pattern from a mile. Pour over your charts and train yourself in detecting and identifying the current trend of the stock. It is a first step… but a very important first step.
Dr. SREEKUMAR RAVINDRAN
Founder and Chief Managing Director at Tradonomix
Dr. Sreekumar Ravindran, known as Saint in trading forums such as Trader Saint Forum & Traderji, is the visionary and mind behind Tradonomix. He is a passionate trader himself and has spent over 15 years researching and accumulating knowledge of trading and applying the same in real-time.
Dr. Sreekumar strongly believes that trading is an aquired skill and that awareness needs to be created for trading as a profession for the common man. Tradonomix is one of his first steps towards this belief, from where he intends to take Tradonomix to an advanced technology-driven social platform for learning, and achieving financial independence.