Technical Analysis: Trends and Time Frames
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Questions and Answers

How long do short-term trends typically last?

  • 3 to 6 weeks (correct)
  • Less than 3 weeks
  • 6 to 9 months
  • More than a year
  • What is the primary concern of long-term investors?

  • Predicting random news events
  • Analyzing intermediate trends
  • Determining the direction of the primary trend (correct)
  • Identifying short-term trends
  • What is the purpose of analyzing intermediate trends?

  • To predict the end of the market cycle
  • To improve success rates in trading (correct)
  • To determine the primary trend
  • To identify short-term trends
  • What represents the short-term trends in the market cycle model?

    <p>A dashed line</p> Signup and view all the answers

    Why do short-term traders need to know the direction of the intermediate and primary trends?

    <p>Because of the principle that smaller movements are influenced by larger movements</p> Signup and view all the answers

    How long do intermediate trends typically last?

    <p>6 weeks to 9 months</p> Signup and view all the answers

    According to the technical principle, where do major surprises occur?

    <p>With the main trend</p> Signup and view all the answers

    What is a key difference between intraday and longer-term trends?

    <p>Intraday trends have a very short-term implication and are more influenced by psychology</p> Signup and view all the answers

    What is the main characteristic of the secular trend?

    <p>It is a long-term trend that lasts over 10 years</p> Signup and view all the answers

    What is a common trait of intraday price action?

    <p>It is erratic and less reliable</p> Signup and view all the answers

    What is the primary objective of technical analysis?

    <p>To identify a price trend reversal</p> Signup and view all the answers

    What is constructed from a number of primary trends?

    <p>The secular trend</p> Signup and view all the answers

    What does the 'art' in technical analysis refer to?

    <p>Combining indicators to recognize a trend</p> Signup and view all the answers

    What is the average duration of a secular trend?

    <p>15-20 years</p> Signup and view all the answers

    What indicates a trend reversal in a series of rising peaks and troughs?

    <p>An interruption in the series</p> Signup and view all the answers

    What is a peak in a trend?

    <p>The end of a bullish market</p> Signup and view all the answers

    What is a trough in a trend?

    <p>The end of a bearish market</p> Signup and view all the answers

    What is the term used to describe the price action experienced by all securities?

    <p>Zigzag pattern</p> Signup and view all the answers

    What is the minimum retracement required for a reaction to be considered legitimate?

    <p>One-third of the previous move</p> Signup and view all the answers

    What happens if a retracement move is less than one-third of the previous move?

    <p>The peak or trough is held to be suspect</p> Signup and view all the answers

    What is the maximum retracement that can occur in a reaction?

    <p>100 percent of the previous move</p> Signup and view all the answers

    What is the percentage of retracement in the example shown in Figure 1.6?

    <p>50 percent</p> Signup and view all the answers

    How precise is technical analysis in determining trends and turning points?

    <p>Far from precise</p> Signup and view all the answers

    What is the typical duration of a primary trend?

    <p>9 months to 2 years</p> Signup and view all the answers

    What is the purpose of identifying reversals in the primary trend?

    <p>To position short-term trades and long-term investments in the direction of the main trend</p> Signup and view all the answers

    What can be observed in a primary upswing?

    <p>Several reactions along the way</p> Signup and view all the answers

    What is the approximate duration of a business cycle?

    <p>3.6 years</p> Signup and view all the answers

    Why do bull markets generally last longer than bear markets?

    <p>Because building up takes longer than tearing down</p> Signup and view all the answers

    What are the countercyclical trends within a primary bull market known as?

    <p>Intermediate price movements</p> Signup and view all the answers

    Study Notes

    • A legitimate peak and trough is determined by a reaction to the prevailing trend, which should retrace between one-third and two-thirds of the previous move.
    • If a retracement move is less than the minimum one-third, the peak or trough in question is considered suspect.

    Peaks and Troughs

    • Peaks and troughs are patterns developed by the price action of all securities.
    • Prices never move in straight lines, whether in an uptrend or a downtrend.
    • The term "zigzag pattern" is used to describe the peaks and troughs.

    Technical Analysis

    • Technical analysis is the art of identifying a trend reversal based on the weight of evidence.
    • The "evidence" consists of scientifically derived indicators or techniques that work well most of the time in the trend-identification process.
    • The "art" consists of combining these indicators into an overall picture and recognizing when that picture resembles a market peak or trough.
    • There are three widely followed trends: Primary, Intermediate, and Short-term.
    • Primary Trend:
      • Lasts between 9 months and 2 years.
      • Reflects investors' attitudes toward unfolding fundamentals in the business cycle.
      • Concerned with identifying reversals in the primary trend.
    • Intermediate Trend:
      • Lasts anywhere from 6 weeks to 9 months.
      • Known as intermediate price movements.
      • Important for improving success rates in trading and determining when the primary movement may have run its course.
    • Short-term Trend:
      • Lasts 3 to 6 weeks.
      • Interrupts the course of the intermediate cycle.
      • Influenced by random news events.
      • Far more difficult to identify than their intermediate or primary counterparts.

    Market Cycle Model

    • Long-term investors are concerned with the direction of the primary trend.
    • Short-term traders are concerned with smaller movements in price, but need to know the direction of the intermediate and primary trends.
    • The principle of "surprises occur in the direction of the main trend" applies.
    • Intraday Trend:
      • Applies equally to very short-term movements.
      • Reversals only have a very short-term implication and are not significant for longer-term price reversals.
      • Extremely short-term price movements are influenced by psychology and instant reaction to news events.
    • Secular Trend (Super Cycle):
      • Lasts over 10 years, often as long as 25 years.
      • Consists of a number of primary trends.
      • A long wave that extends over a substantially greater period.

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    Description

    Test your understanding of technical analysis, including the application of principles to different time frames, from one-minute bars to monthly charts. Learn about the three widely followed trends, including primary, intermediate, and short-term trends.

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