A Technical Approach To Trend Analysis: Practical Trade Timing for Enhanced Profits

Statistical Tendencies

The rationale for tracking price trends statistically through moving averages is to manage the volatility seen in short-term prices. For many, the price patterns and their highly chaotic and unpredictable nature explain why so many people subscribe to the random walk hypothesis (RWH). However, there are important differences. A truly random price pattern should consist of no discernible pattern at all, or of a non-repetitive pattern developed coincidentally. This does not occur. Many patterns occur frequently, and some do lead to reversal a majority of the time. Many of these like the W and M patterns observed in Bollinger Bands are highly predictive and work as a method for quantifying variables to a likely range. In ...