Contrary to the belief people have that determining the stock’s trend is easy, in real time this is very difficulty and you can not have a probability of 100 per cent, otherwise every one of us would be a successful trader. Strength or uptrend is identified by a series of crests where each crest exceeds the highest point of the previous crest. The decline, between crests, ends above the lowest point of the previous decline. Weakness or downtrend is identified by a series of troughs where each trough goes lower than the lowest point of the previous trough. The incline, between troughs, ends below the highest point of the previous incline.
Whilst higher crests and lower troughs are one of the best measures of strength and weakness respectively, these methods have serious drawbacks. It is only varied only if you are to compare troughs and crests of the same degree. Identification of troughs and crest of the same degree in real time is difficult for us to visualize. It may look easy to compare troughs to troughs and crests to crests, but even then it would be difficulty in real time to tell if the trough or a crest has ended to start the comparison. It is not until you split your troughs and crests into their finer prints that you notice that there are small wiggles in between the bigger troughs and crests, and identifying which one should be grouped together in real life is an impossible intellectual challenge, leave alone being able to see and isolate them.
Then how do we quantify strength and weakness to survive in this business?
Head Here: How to Quantify Strength and Weakness in the Stock Market
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