Option Services and Software to Serve Every Need   |   sales@mindxpansion.com

global services

Maximize Your Profits!
Minimize Your Risk!

Get Option-Aid Today!

Trend Analysis

There is a common saying among traders, "The trend is your friend." What this means is that when a trend is established, it frequently continues for some time, so traders can ride the trend until it breaks down. The earlier you can recognize a trend, the higher the profits you can attain. Trends are often signaled by crossovers in moving averages such as the MACD. Charles Dow, the first editor of the Wall Street Journal, formed the basis of technical analysis with his ideas about identification and confirmation of market trends which was subsequently embodied in a series of principles that came to be known as Dow Theory.

A trend is a consistent general change in prices over time. Trends can move upward (rising trend), downward (falling trend), or sideways (trading range).

A rising trend is established where there has been a series of closing prices whose lows have not broken a diagonally rising support line. It is characterized by consistently higher lows and higher highs. The buyers remain in control of this trend, not letting the price dip below a consistently rising support line. When prices dip to the line, the buyers step in and buy the trend.

Technical analysts look for a breakout downward through the rising support line to produce a sell signal, if the movement is sustained. High volume helps to confirm the breakout, while low volume indicates the breakout may not be sustained. A breakout is caused by a change in investor expectations. It could be caused by an earnings warning or a bad earnings report, or an exogenous event in the market, or simply overvaluation. Whatever the cause, buyers are no longer willing to support the price at the rising level and feel that the price could drop further. When investor expectations change, it can make a sharp change. Buyers who were supporting the rising price level realize that they have a large position in a security whose price is falling fast so they sell some to cut their losses, which fuels the drop even more.

Sometimes the breakout can be a false breakout. This is called a bear trap. The price may dip below the rising support line causing technical traders to sell on the breakout. If it was not caused by a fundamental change in outlook, the price may quickly move back up to the support line as sellers realize that they sold too quickly.

A falling trend is established where there has been a series of closing prices whose highs have not broken a diagonally falling support line. It is characterized by consistently lower highs and lower lows. The sellers remain in control of this trend, not letting the price rise above a consistently falling resistance line. When prices rise to the line, the sellers step in and sell the trend.

Technical analysts look for a breakout upward through the falling resistance line to produce a buy signal, if the movement is sustained. High volume helps to confirm the breakout, while low volume indicates the breakout may not be sustained. A breakout is caused by a change in investor expectations. It could be caused by a good earnings report or a good announcement, or an exogenous event in the market like a drop in interest rates, or simply undervaluation. Whatever the cause, sellers are no longer willing to resist the price at that falling level and feel that the price could rise further. When investor expectations change, it can make a sharp change. Sellers who were sustaining the falling price level realize that they have a large short position in a security whose price is rising fast so they buy some to cover their shorts and cut their losses, which fuels the rally even more.

Sometimes the breakout can be a false breakout. This is called a bull trap. The price may rise above the resistance line causing technical traders to buy on the breakout. If it was not caused by a fundamental change in outlook, the price may quickly move back down to the falling resistance line as buyers realize that they bought too quickly.

After a trend has lasted several months, you should be alert for signals that may give early warning of the end of the trend, such as a surge in price and volume. Spikes, wide-ranging days (days where the prices trade in a much broader range than previous days or subsequent days), exhaustion gaps, and reversal signals can warn of a trend that is ending. A spike high can be identified by a high that is significantly above the prices on the preceding day and the following day, or a strong rally followed by close near the day's low. A spike low can be identified by a low that is significantly below the prices on the preceding day and the following day, or a strong decline followed by close near the day's high. Exhaustion gaps are gaps that are not followed by new highs in an up-trend or new lows in a down-trend.




When you are analyzing potential option positions, it helps to have a computer program like Option-Aid that swiftly calculates volatility impacts, probabilities, statistics, and other parameters of interest. These programs can pay for themselves with the first trade that they help you with.


Buy Option-Aid Today and Maximize Your Profits!

Money       As you start using this valuable option software program and become familiar with the vast amount of information it puts at your fingertips, it quickly becomes an indispensable tool for evaluating option positions.


Information is the Key to Increasing Wealth

       Option-Aid is a great trading tool for playing out "what-if" scenarios to maximize your profits and minimize your losses. It has many features to give you the Trader's Advantage.

       Buy it today! Profits from your first position can more than pay for the program. Your order will be placed through a secure server.

       It will change your future! Order it now!


Order On-line

Visa Mastercard AmEX Discover



Get FREE Option Tips

The Option Trading Tips Newsletter is published by MindXpansion, the developers of Option-Aid. This newsletter gives you information for maximizing your profits in options trading, including option strategies and market indicators. Fill in the following information to subscribe to this FREE service.


  Email:    
  
  How you were referred to Us?   
 

   
(Please select SEND button after you have filled in information.)