One of the principles of technical analysis is that a trend once formed will continue in the same direction until it is broken. When there is no movement or very little up or down movement, it is called a horizontal or sideways trend. The term sideways trend is a misnomer. After all, it is not a trend at all because it does not take any direction. The market can only move up or down or remain flat.

TIME FRAME OF A TREND

A trend once formed will continue to move in the same direction till such time there is a change in demand and supply situation. A trend can be termed as long-term, intermediate, or short-term depending on the time it lasts.

In the stock market, a trend that lasts more than a year can be said to be a long-term trend. A trend lasting for one to three months is said to be an intermediate trend. Any trend that lasts less than a month is a short-term trend.

During a long-term trend, we may witness several intermediate trends moving in the opposite direction. Let us say the long-term trend is moving upwards, and there is a downward movement in the price for a short while. When the price once again starts moving upwards after a brief correction, such a trend is called an intermediate trend. A short-term trend could be a part of both the long-term and intermediate trends.

For analyzing the long trend of a stock, say one year, one has to study a chart that is more than a year. For an intermediate trend, one has to study the chart for six months, and for a short-term trend, one has to study a chart for more than a month. In other words, to study a trend we must construct a chart that reflects the type of trend under study.

DRAWING A TREND LINE

Trend lines are basic to technical analysis. For a person who is new to technical analysis, the explanations on how to draw a trend line may be a bit confusing. With some practice, it becomes easy.

For an uptrend, a line is drawn connecting the lowest low point and the highest minor low that precedes the highest high point. The line must not pass between two low price points. This is the upward trend line. In the same way, for a downward trend line, a line connecting the highest high downward and the lowest minor high point that precedes the lowest low is drawn. The line must not pass between two low price points.

The figures shown below will make it clear.

The uptrend line is drawn connecting the lowest low and the ‘highest minor low’ price point the precedes the highest high. The downward trend line is drawn connecting the highest high and the lowest minor high point that precedes the lowest low point. Drawing a trend line is the most basic in technical analysis.