Understanding Stocks

LET’S GET TECHNICAL: INTRODUCTION TO TECHNICAL ANALYSIS 115
T Daily
Volume
8 10 14 16 18 22 24 28 30 Nov 5 7 11 13 15 19 21 25 27 Dec 4 6
Figure 11-6 Sideways trend
figuring out when the sideways pattern will finally end. It would be
dangerous for a short-term trader to buy the stock in Figure 11-6
because it is so unpredictable. It could easily move in either direction.
Trend Reversal
One of the challenges of technical analysis is to determine when the
current stock trend will run out of steam and reverse direction. In fact,
technicians are constantly on the lookout for the “breaking” of the trend
line, which signifies a trend reversal. Figure 11-7 gives an example of
a stock index that has reversed direction.
In Figure 11-7, the index QQQ was clearly in a downtrend in early
September. By the end of the month, however, it had suddenly reversed
direction, and it continued to move higher. A short-term trader isn’t
especially concerned about why the stock reversed direction—only that
it did. Identifying this trend reversal and buying it during the early
stages could be very profitable for a trader. In this case, holding the
29.5
29.0
28.5
28.0
27.5
27.0
26.5
26.0
25.5
25.0
24.5
24.0
23.5
23.0
22.5
22.0
©Big Charts.com
20
12/06/02
15
10
5
0
Millions