Technical Analysis: Power Tools for Active Investors

The First Step: Define the Major Trend and Major Term Cycles of the Stock Market

Trend-defining tools: Employ the tools and procedures below to define significant trends in the stock market.

• The direction of major term moving averages—the 40-week or approximately 200-day moving average—is very useful for this purpose. Consider not only the direction, but also changes in the slope of the moving average. It is less significant if prices lie above or below the moving average on an absolute basis. Trends in the relationship of price to moving average are more significant. (See Chapter 3, “Moving Averages and Rates of Change: Tracking Trend and Momentum.”)

• Study the direction of longer-term moving average channels and the patterns of price movement ...