Trend is Like Gravity

Trend is Like Gravity

A cornerstone of all technical analysis is `The Trend’. Rightly so, since the trend is the truest, most precise measurement of the system the analyst is observing and studying. It is a particular vector descriptive of a dynamic system. In different words, it specifies a certain direction, say up, down, or sideways, of a particular portion of the system’s (i.e. the market’s) path or orbit.

Conceptually, one could appreciate the essence of the `Trend’ concept, and specifically a financial market’s particular trend, at any given moment,  by a stretch of the imagination. For example, and by analagy, consider what the direction of a particular planet would be, if  it were not a part of a solar system, that had at its center a sun. Given this constraint, one may not be able to know perfectly the direction of that planet. However, you would know that whatever the direction was, and is, it would persist. In fact persistency is the `home’ or natural state of every moving thing. So it is, for financial markets! The only reason a planet’s motion is not perfectly persistent is because it is not moving in a vacuum and there are interruptions in it’s path’s persistency due to other, external bodies that exist. 

A planet has an orbit, which has curvature, simply because there exists another body, i.e. the sun. The precise curvature is determined as a function of the specific relationship between these two bodies.  Gravity, is the name given to describe this relationship. Rhetorically, one might ask, if a financial market could exist in a singular domain, what would it’s direction or trend be. Like in the example above, even if you don’t know what it is, you would at least know that it would persist. Again Why?

Because  persistency is it’s home or natural state. Only if and when the singularity of the domain is interrupted, will the market have the potential to aquire any curvature. Unlike our solar system, a given financial market (in a direct sense), doesn’t revolve around a star (although indirectly it does). However, the market analog of our solar system’s sun, would be all of the fundamental events that occur in the world, moment by moment. Only when certain, particular fundamental profiles exist, does the phenomena of gravity manifest, and thereby allow for the possibility of injecting curvature or change to a market’s otherwise persistent direction. Technicians have coined a term for these `special’ profiles. We call them tops and bottoms.

Tune in to my next webinar, this Thursday, September 26, at 3:30 pacific time, to see how a deeper understanding of trend can improve your trading results.


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