The Major Trend May Or May Not Be Your Friend

[sh50]

EXTRACT FROM EDWARDS AND MAGGIE "ANALYSIS OF STOCK TRENDS"


ALTHOUGH A MAJORITY OF STOCKS WILL PARTICIPATE IN A BIG MARKET TREND, THEY WILL NOT ALL MOVE AT THE SAME TIME OR TO THE SAME DEGREE. SOME WILL MOVE QUITE INDEPENDENTLY AND CONTARARY TO THE AVERAGES.. THERE WAS A BOOM IN 1920S AND THERE WAS A PANIC IN OCTEOBER,1929. BUT THESE ARE INADEQUATE STATEMENTS, HALF-TRTUTHS AND CAN BE VERY MISLEADING IF SWALLOWED WHOLE.

IN THE CONTEXT OF THE GREAT CRASH OF 1929

AMONG 676 STOCKKS OBSERVED FROM 1924-1935
184 MADE A BULL MARKET TOP IN AUGUST-SEPTEMBER'1929 AND SUFFERED MAJOR DECLINES AFTER OCTOBER'1929.
262 STOCKS WERE ALREADY IN A MAJOR TREND BEFORE THE YEAR 1929.
181 OTHER STOCKS MADE THEIR BULL MARKET TOPS IN THE FIRST NINE MONTHS OF THE YEAR AND WERE ALREADY MOVING DOWN BEFORE THE END OF THE SUMMER.
5 STOCKS DID NOT START THEIR DECLINE UNTIL AFTER 1929.
44 STOCKS CONTINUED TO MAKE NEW HIGHS AFTER 1929.

THIS IS QUITE A REVELATION. cALLS FOR A BIT OF THIRD-EYE JUDGMENT. IT CAN HELP MAINTAIN YOUR EQUILIBIRUIM AS WELL AS YOGA- WHEN THE MARKET IS BULLISH, YOU WILL NOT BE OVER-THRILLED AND VICE-VERSA.

WHAT IT ACTUALLY IMPLIES THAT EVEN IF YOU HAVE A MARKET DRIVER(ONGC,RELIANCE), IT IS BETTER TO CROSSCHECK WITH A BULLISH NIFTY I.E STUDY THE SCRIPS DAILY AND WEEKLY CHARTS. IS THAT RIGHT, TRADERJI?

"TREND IS YOUR FRIEND" IS STRICTY FOR EXPLAINING TRENDLINES

 

[Traderji]

Since trading with the trend is essential to exploiting the trend component of market price action, successful trading and approaches employ some method of identifying trend. A popular idea is a separate trend filter. This is an algorithm that preliminarily looks at recent price action and determines whether the trend is up, down or neutral.

It is not essential that every approach have a separate trend filter. Some methods, such as moving averages, is a trend indicator. Others (not recommended by me) try to predict an imminent change in trend and are therefore entering when the trend is against them at the time.

Many traders attempt to complicate the problem of trend identification. They invent all kinds of fancy mathematical equations and methods of massaging past price action to more precisely determine whether the trend is up or down. I have long argued that this is pointless. Like all things in trading, simplicity is the best route.

Of course, trend is only relevant in conjunction with a particular time frame. But once you identify the time frame, there is nothing fancy about the concept of trend. The price is either moving up or it is moving down during that time period. You can look at a chart and in most cases quickly determine whether price is moving up or down in your time frame. Why should it be any more complicated than that? Perhaps in cases of price congestion, it is slightly more difficult to say with certainty what the trend is by quickly looking at a chart. However, this is no reason to unnecessarily complicate the trend determination process.

 

[sh50]

Should not one compare it with the overall market trend(Nifty50) and the particular Industry index to see how the stock is faring vis-a-vis the Indsutry and overallmarket. It could be going in the adverse direction.

 

[Traderji]

Should not one compare it with the overall market trend(Nifty50) and the particular Industry index to see how the stock is faring vis-a-vis the Indsutry and overallmarket. It could be going in the adverse direction.

It is always appropiate to check the general market trend first!

 

[sh50]

I think there is a mixup of words here. Your "general market trend" would be to look at Nifty, is it not. I called it overall market trend. You are stressing on simplicity- that would be to look at the price chart of the individual stock and compare it with Nifty isn't it? At the most one can look at the weekly/monthly chart of the individual stock?

 

[Traderji]

I think there is a mixup of words here. Your "general market trend" would be to look at Nifty, is it not. I called it overall market trend. You are stressing on simplicity- that would be to look at the price chart of the individual stock and compare it with Nifty isn't it? At the most one can look at the weekly/monthly chart of the individual stock?

You can look at the nifty, bse 100 or the bse 200 to get the general market trend.

 

[sh50]

In metastock there is an indicator called the Relative Strength Comparative to facilitate comparison between stocks and Industry groups and perhaps the market trend. Would you comment on that, please?NSE does not have industry indexes apart from IT Index, isn't it?

 

[Traderji]

In metastock there is an indicator called the Relative Strength Comparative to facilitate comparison between stocks and Industry groups and perhaps the market trend. Would you comment on that, please?NSE does not have industry indexes apart from IT Index, isn't it?

The BSE has a whole lot of industry indices which you can use.

 

[sh50]

What about Relative strengh comparative. The more it is greater than 0 the better the stock is vis-avis nifty, I suppose.

 

[Shahina]

Hi friend,

I am Indian lady from Singapore, a novice analyst and new to Indian sotck market.

I read your analyst and can not understand many things. First of all, yo said that major trend may or may not be your friend, I feel that a trend is always your friend, whether it's going up or down .

Secondly you said that market is going up but majority of shares will not go up, that's normal when we are in 5th wave. Usually in 5th wave, blue chip companies are not going up, instead Rat Stocks are moving up very fast. Blue chipps stocks one day go up very fast and other day

So my dear friend, don't be mad behind the market, just follow the proper trend for every stock, beleive me TREND IS YOUR GOOD FRIEND.

Bye
Shahina