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The rest of the time prices will trade more or less in a side ways range. Dow interpretation of a trend was that each rally high be higher than the previous rally high and each rally low be higher than the previous rally low.

The longer the time span used to calculate the moving averages the greater the significance of its violation by price. These include smoothed, weighted and exponential moving averages.

Another example might be an economist who examines a country’s currency based on all the underlying economic factors and purchasing parity to determine the true value of that currency against another currency. It’s important to insure that your stop is canceled if you close your position.

The primary trend may take years to come to an end and develops over time. You may be thinking by this stage that this theory is rubbish.

The ideal will be when all three trends are in unison, but this is not a prerequisite, as intermediate trends can be substantial in both time and price. This identification of trend, its beginning and end, is the most important thing we have to do.

It is very important to understand the concept of support and resistance. A simple definition of trend is basically the general direction of price movements.

The forex market can have leverage of 1% with some brokerages. Because we don’t know if this is going to develop into a trend I like to see the price first return back to the 9 period moving average and then monitor what happens next.

For the purpose of this book we shall concentrate on technical analysis. So it is with channels, as these too must be adjusted as the trend accelerates or decelerates.

You can see that the market progressed to R1 and then retraced to S1, this is the setup. The difficulty arises because of the time factor.

The price at which a trade takes place is the price at which a bull and bear agree to do business. If each day is an independent event then the markets must be random.

In technical analysis, price movement in the opposite direction of the prevailing trend. The changing prices of a security from tick to tick, day to day or whatever time period you are looking at may seem random, but there are ways to smooth out this randomness.