Trends
The theory underlying these indicators is that once a trend is in motion, it will continue in that direction. Technical analysis attempts to determine the strength and the direction of the trend. The earlier that this can be accomplished, the earlier the trend can be followed and the more profit can be made. Knowing the trend is equally as important as avoiding bad trades. Strategies such as buying the dips work well if the trend is going your way. If it is not, the risk is higher and the potential profit is smaller.
Figure 4.3 shows how long trends can last. The long-term trend for the Dow Jones Industrial Average was unbroken for the 16 years leading into the original publication of this book. Shorter-term trends came and went, but the ...
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