We often hear people talking about the trend being your friend. Follow the trend as if he is your friend, violate it you will be at a losing end. So what is this trend they are talking about? A trend is defined as the measurement of time where the overall direction of price is in unity moving in one direction across different time spans. What this means in simple terms, is that majority of the stock prices are moving in unity in one direction, either up or down. If the market price is moving sideways, it is considered to be trend less. There are many trends, such as primary, intermediate, short-term, intra-day and secular trends. However, only three of them are most important. They are the primary, intermediate and short term trends.
The period of this trend generally lasts over a period between 9 months to 2 years. Treat this as a reflection of investors’ attitude towards the fundamentals in the business cycle. A business cycle lasts approximately over an average period of 4 years. However, as more and more people start to invest in the market, this causes bull and bear markets to last longer. Bull markets generally last longer than bear markets as as it takes time to build up confidence but fear subsides quickly after any major negative news or event. That is why you see market prices going up slowly over a longer time frame but falling very quickly in a shorter time frame.
* Intermediate trend
The period of this trend generally lasts over a period between 6 weeks to 9 months or longer but rarely shorter. Intermediate trends are countercyclical trends that interrupts the course of the primary trend price movements.
* Short-term trend
The period of this trend generally lasts over a period between 2 to 4 weeks varying between longer and shorter time occasionally. Short-term trends interrupt the course of intermediate trends just like how the intermediate trends interrupt the course of the primary trend. This trend is influenced by random news events and is more difficult to identify when compared to the primary or intermediate trends.
* Intra-day trend
This is the daily trend that traders are able to identify by hourly to tick-by-tick movements. However, as the nature of this trend is emotionally driven, it is more susceptible to price manipulation and tend to be very volatile.
* Secular trend
This trend consists of several primary trend cycles. This super cycle normally lasts between 10 to 25 years for both bull and bear markets.
In general, the magnitude and duration of the each trend reaction, are influenced by the time frame of its longer trend party. This applies throughout the other trends where the longer trend periods will have influence over both the magnitudes and periods of shorter trend periods. For example, in a bull market secular trend, primary bull market magnitudes will be greater and last longer than primary bear market magnitudes and vice versa for bear market secular trend. What this means, is that in a bull market secular trend, primary bull market prices will move in greater magnitudes and last longer in durations than primary bear market prices, while in a bear market secular trend, it is the exact opposite.
It is apparent that the price level of any type of market, is being influenced by several different types of trends simultaneously. Depending on the view point of your analysis and the style of your trading or investing strategy, longer term investors will be more concerned with the direction of the primary trend while taking into considerations both the intermediate and short-term trends when planning entries or exits for a trade. It is important for them to at least have a perspective on the current duration of the bull or bear trends while planning for their trades, the main concern lies with the longer term trend reactions. While for shorter-term traders, obviously they will be more concern with the shorter time frames, that are the intermediate and short term trends. However, they must also take into consideration of the primary trend as that is still the core of all trades since trading against the primary trend carries a higher probability of losses.
In reality, all market participants must at least know how the primary, intermediate and short term trends work while the emphasis will be depending on whether they are trading for short periods of time or investing for a longer period of time. If there is one important thing you need to know regarding trends that result in losses, be aware that most trades that result in losses occur when a trader trades against the main trend.